INTRODUCTION: THE BRITISH FINANCIAL SYSTEM IN 1873

Walter Bagehot, editor of The Economist, published Lombard Street in 1873. Bagehot rejected the title ‘Money Market’ because he wanted to convey to readers that he was dealing ‘with concrete realities’ (Bagehot 1873: 1), and reality in 1873 was that the bricks-and-mortar components of the London money market around Lombard Street were banks: the Bank of England, private banks, joint-stock banks and discount houses. In Bagehot’s words, these banks formed ‘the greatest combination of economical power and economical delicacy that the world has ever seen’ (Bagehot 1873: 2). However, the two centuries of financial development that produced Lombard Street also sheltered once-innovative, now-dated arrangements like England’s decentralised regional banking system (Cottrell 1980: 16). In 1873, Britain had 376 private and joint-stock banks, of which ten were Scottish and 296 – 80 per cent – of the remaining 366 banks were English and Welsh banks outside of London (see Table 6.1). Similarly, two-thirds of England’s £393 million of commercial bank deposits were outside of London, and most of Britain’s 481 Trustee Savings Banks were also outside London (Table 6.1; Horne 1947: 379–85).

Regional banks were mostly local concerns, and London acted as the hub that integrated the regions into a larger financial system. On an average day in 1873, provincial banks had £9 million on deposit with correspondent banks in London and £5 million in cheques and notes being cleared – mostly using the London Clearing House (Capie and Weber 1985: 280, 475). London was also where banks that needed cash sold bills of exchange.