Banking and Finance to 1921

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Banking and Finance to 1921

The emergence of formal banking institutions in Ireland was preceded by development of credit facilities in internal and cross-channel trade. The shortage of banks was to some extent offset by the fact that some important areas of economic activity (linen markets, e.g.) functioned mainly on a cash basis while much of the credit for cross-channel trade was provided by London merchants. Such credit could be quite extended (as long as six or seven months), and by 1785 perhaps 1 million pounds was provided for the linen trade in this way.

The legal code governing banking in eighteenth-century Ireland was dominated by an act of 1756, passed by the Irish Parliament, that prohibited anyone who undertook "trade or traffick as merchants in goods or merchandise imported or exported" from setting themselves up as bankers. This legislation deterred the emergence of the overseas trader-banker in Ireland. Four years later another act seemed to prevent bankers from paying interest on deposits, and a third measure, in 1782, which established the Bank of Ireland (opened 1783) by royal charter, also limited all other banks to a maximum of six partners. The first of these two acts meant that banking in Ireland would develop in a way different from elsewhere in the British Isles, and the third ensured that any new banking ventures would necessarily be relatively small.

Despite its large size, the Bank of Ireland did not open any branches until 1825 and proved itself highly conservative in the provision of credit, refusing to grant overdrafts on current accounts until the 1830s. Moreover, its staff and Court of Directors were overwhelmingly Anglican. Presbyterians in the north were determined to seize the financial initiative and set up banks of their own, thus diminishing their dependence on Dublin. The formation of three new banking partnerships—the Belfast Bank (1808), the Commercial Bank (1809), and Northern Bank (1809)—indicated the extent to which religion and finance combined to produce a set of durable banking houses firmly rooted in Ulster's industrial and commercial development.

It is probably no accident that these banks were founded after some thirty years of increasingly direct export from Ulster in the linen trade, and also after the most intensive decade of investment in cotton mills in the Belfast area. Because of the uniqueness of Belfast as a manufacturing area, banks were in a relatively favorable position to provide a whole range of services to the manufacturing sector. It is also probably the case that the textile industries, although they were undoubtedly unstable, helped to protect the northern banks from the worst effects of the agricultural depression and deflation that followed the end of the Napoleonic wars in 1815, thereby helping to ensure their survival.

Within a few years of the return of peace in 1815, the banks established "agencies" in country towns and villages. The principal function of them was to increase note circulation through the discounting of bills of exchange, thereby facilitating industrial and commercial development. Bank agents usually combined their banking functions with other, usually complementary, pursuits and normally worked from home or their own business establishment. They were the forerunners of the branch managers.

Financial instability in the decade following the end of the Napoleonic wars caused bank failures, which led to legislation in the mid-1820s permitting the formation of banks with more than six partners. Especially in the years 1824 to 1827 and 1834 to 1838, some old banks converted to "joint-stock" concerns with many shareholders, and other banks were created as entirely new institutions. Joint-stock bank promotion greatly increased competition for customers. By the middle of the nineteenth century all banks, with the exception of the Dublin-based Royal Bank, operated branch networks. Only the Provincial Bank (established in 1825, with a head office in London) and the Bank of Ireland had networks with almost national coverage. Three others—the Northern Bank (a private bank converted in 1824 to become the first joint-stock bank in Ireland), the Belfast Bank (converted to joint stock from two private banks in 1827), and the Ulster Bank (a new concern in 1836)—were confined to the province of Ulster. The Tipperary Joint Stock Bank (established in 1838) had a small network in County Tipperary and the surrounding area; the National Bank (established in 1835) possessed the largest number of branches in 1850, although it had not yet penetrated the industrial northeast; and the smallest system was operated by the Dublin-based Hibernian Bank (established in 1825).

Between 1850 and 1913 the Irish banking system continued to expand, from fewer than 200 offices to around 850. The main reason for this expansion was the need to maximize deposits, a key determinant of lending capacity and of profitability. By 1913 some 320 offices were open only on specified days of the week, particularly market or fair days, to cater for local need. Most of the deposits came from rural areas, and branch networks enabled banks to utilize them to fund industrial expansion in larger towns as well as to spread their risks. The great majority of banks were both stable and profitable. Bank failure was comparatively rare in Ireland. The most notable joint-stock failures were those of the Tipperary Bank (1856) and the Cork-based Munster Bank in 1885, and in fact from the latter institution emerged the successful Munster and Leinster Bank. In order to protect their shareholders, banks adopted limited liability, especially following the Companies Act of 1879.

The various Irish banks offered a similar range of services, chief among them deposit-taking and the provision of credit facilities, such as discounting bills of exchange, overdrafts, and fixed-period loans. Many of them also issued their own notes. In most areas banking was a reflection of the type of local economic activity: farming, estate management, or professional services, as well as industry and trade. For this reason seasonal rhythms typified business, as in the linen and the provisions trades. In buoyant economic conditions banks were more likely to extend credit, but downturns in economic activity brought curtailment and demands for repayment. Thus in Irish agriculture the Great Famine of the late 1840s and the depressions of 1859 to 1864 and 1877 to 1879 all saw the banks make determined efforts to limit exposure to bad debts by calling in loans and being cautious about new agricultural business. There is considerable evidence that banks were closely involved in the industrial expansion in nineteenth-century Ulster, meeting the diverse demands of short-and long-term credit by a range of producers, from the small firm to the largest linen companies and shipyards. Sometimes the demand for credit—such as the demand that occurred during the expansion of the linen industry that accompanied the American Civil War of 1861 to 1865, for example—could be enormous, but, as in the agriculture business, the banks exercised caution during recession and depression (e.g., in 1847–1848, 1857–1858, 1879, 1886, and 1908–1909).

The First World War from 1914 to 1918 brought great prosperity for much of Irish agriculture and led to a huge increase in deposits. This helped to provide fiscal stability for the country after partition. The banks generally kept out of the public debates on Irish politics before 1920.