The story
Founded by Charles Montagu, 1st Earl of Halifax on Jul 27, 1694.1
Founding
Following the Revolution of 1688, which brought William III and Mary II jointly to the British throne, the establishment of a national bank came to fruition. During the Nine Years' War (1688–1697), the Royal Navy was defeated by the French Navy in the 1690 Battle of Beachy Head, causing consternation in the government of William III of England. The English government decided to rebuild the Royal Navy into a force that was capable of challenging the French on equal terms; however, their ability to do so was hampered both by a lack of available public funds and the government's low credit. This lack of credit made it impossible for the English government to borrow the £1.5m that it wanted to use to expand the Royal Navy.
Concept
The idea of a public bank antedated its establishment by two decades. It was a topic of discussion and dispute in the 1670s and 1680s. John Locke was an early supporter of the concept, and, once it was established, an early investor. In 1691, Scottish trader and banker William Paterson had proposed establishing a national bank as a means of bolstering public finances. As he later wrote in his pamphlet A Brief Account of the Intended Bank of England (1694): "...it was proposed some years ago that a publick transferrable Fund of Interest should be established by Parliament, and made convenient for the Receipts and Payments in and about the Cities of London and Westminster; and to constitute a Society of Money'd Men for the government thereof, who should be induced by their Interest to exchange for Money the Assignments upon the Fund, at every demand". While his scheme was not immediately acted upon, it did provide the basis for the bank's first Charter and the legislation which made its establishment possible.
Two other key figures in the bank's creation were Charles Montagu, the Member of Parliament for Maldon, who played a crucial role in steering the proposals through Parliament (and was afterwards appointed Chancellor of the Exchequer); and Michael Godfrey, who helped persuade City financiers of its benefits (and was subsequently chosen to be the bank's first Deputy Governor).
It has also been claimed (by W. R. Scott, among others) that William Phips played a timely, if incidental, role: his successful expedition to retrieve booty from a sunken Spanish galleon (the Nuestra Señora de la Concepción) helped create an ideal market for the bank's foundation: flooding the market with bullion and creating an enthusiasm for joint-stock ventures.
Legislation
Paterson's proposal required the Government to set up a fund from which interest would be paid to the subscribers. It was decided that this would be provided for by income from tonnage, and certain other shipping duties routinely levied by HM Exchequer; therefore Parliament approved the bank's establishment by means of the Tonnage Act 1694:
An Act for granting to theire Majesties severall Rates and Duties upon Tunnage of Shipps and Vessells and upon Beere Ale and other Liquors for secureing certaine Recompenses and Advantages in the said Act mentioned to such Persons as shall voluntarily advance the summe of Fifteen hundred thousand Pounds towards the carrying on the Warr against France.
To induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. Public finances were in such dire condition at the time that the terms of the loan (as laid down in the Act of Parliament) were that it was to be serviced at a rate of 8% per annum; there was also a service charge of £4,000 per annum payable to the bank for the management of the loan.
The Act limited the subscribers' investment to a maximum of £10,000 each in the first instance, and £1,200,000 in total (it was envisaged that the Exchequer would raise the remaining £300,000 through other forms of borrowing).
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Incorporation
The royal charter of the Bank of England was granted on 27 July 1694, three months after the passing of the Act.
In the end the £1.2 million was raised in 12 days; 1,268 people subscribed. Their holdings were known as Bank Stock (Bank Stock continued to be held in private ownership until 1946 when the Bank of England was nationalised). The majority of the original subscribers were of 'the mercantile middle classes of London' (though tradesmen and artisans also subscribed). Most (more than two-thirds) contributed less than £1,000. As a proportion of the total amount raised, 25% came from 'esquires', 21% from merchants and 15% from titled aristocrats. Twelve per cent of the original subscribers were women. King William and Queen Mary (jointly) invested £10,000, the maximum permitted sum, as did a handful of others, including Sir John Houblon.
Investment in the navy duly took place. As a side effect, the huge industrial effort needed (including establishing ironworks to make more nails and advances in agriculture feeding the quadrupled strength of the navy) started to transform the economy. This helped the new Kingdom of Great Britain – England and Scotland were formally united in 1707 – to become powerful. The power of the Royal Navy made Britain the dominant world power in the late 18th and early 19th centuries.
Governance
The first Governor of the bank was John Houblon, and the first Deputy Governor Michael Godfrey. (330 years later, in 1994, the bank would issue a £50 note depicting Houblon to mark its tercentenary.)
Governance was vested in the Governor, his Deputy and a 'Court' of 24 Directors (most of whom were merchant bankers recruited from the city); the Directors were elected annually by a 'General Court' of all the Bank's registered stockholders (collectively known as 'the Proprietors'). The common seal of the Court of Directors, adopted on 30 July 1694, depicted 'Britannia sitting and looking on a Bank of mony'; Britannia has been the bank's emblem ever since.
The Court appointed three senior officers who, alongside the Governor and Deputy Governor, were responsible for its day-to-day running of the bank: the Secretary and Solicitor, the First Accomptant, and the First Cashier. Their successors, the Secretary, Chief Accountant, and Chief Cashier, continued to head up the main divisions of the bank's operations for the next 250 years: the Chief Cashier and the Chief Accountant had oversight of the 'cash side' and the 'stock side' of the bank, respectively, while the Secretary oversaw its internal administration.
Besides these officers, the bank in 1694 was staffed by seventeen clerks and two doorkeepers.
Premises
The bank initially did not have its own building, first opening on 1 August 1694 in Mercers' Hall on Cheapside. This however was found to be too small and from 31 December 1694 the bank operated from Grocers' Hall (located then on Poultry), where it would remain for almost 40 years. (Houblon had served as Master of the Grocers' Company in 1690–1691.)
Operation
The Act of Parliament prohibited the bank from trading in goods or merchandise of any kind, though it was allowed to deal in gold and silver bullion, and in bills of exchange. Before very long, the bank was maximising its profits by issuing banknotes, taking deposits and lending on mortgages.
In its early days the bank made significant losses, not least by accepting clipped coins in exchange for its banknotes. The establishment of a Land Bank (by John Asgill and Nicholas Barbon) in 1695, and a currency shortage occasioned by the Great Recoinage of 1696, both threatened the bank's position; but Parliament intervened, passing another Act that year, which authorised the bank to increase its capital to over £2.2 million (equivalent to £359.11 million in 2025) through the enlarging of its stock by new subscriptions.
18th century
In 1700, the Hollow Sword Blade Company was purchased by a group of businessmen who wished to establish a competing English bank (in an action that would today be considered a "back door listing"). The Bank of England's initial monopoly on English banking was due to expire in 1710. However, it was instead renewed, and the Sword Blade company failed to achieve its goal.
The idea and reality of the national debt came about at around this time, and this was also largely managed by the bank. Through the 1715 Ways and Means Act, Parliament authorised the bank to receive subscriptions for a government issue of 5% annuities, designed to raise £910,000; this marked the start of the bank's role in managing Government Stocks, which were a means for people to invest in government debt (previously Government borrowing had been administered directly by the Exchequer). The bank was obliged by the Act to pay half-yearly dividends and to keep a book record of all transfers (as it was already accustomed to do with regard to its own Bank Stock).
The bank did not have a monopoly on lending to the government, however: the South Sea Company had been established in 1711, and in 1720 it too became responsible for part of the UK's national debt, becoming a major competitor to the Bank of England. While the "South Sea Bubble" disaster soon ensued, the company continued managing part of the UK national debt until 1853. The East India Company too was a lender of choice for the government.
In 1734 there were ninety-six members of staff at the bank. The bank's charter was renewed in 1742, and again in 1764. By the 1742 Act the bank became the only joint-stock company allowed to issue bank notes in the metropolis.
Threadneedle Street
The Bank of England moved to its current location, on the site of Sir John Houblon's house and garden in Threadneedle Street (close by the church of St Christopher le Stocks), in 1734. (The estate had been purchased ten years earlier; Houblon had died in 1712, but his widow lived on in the house until her death in 1731, after which the house was demolished and work on the bank began.)
The newly built premises, designed by George Sampson, occupied a narrow plot (around 80 feet (24 m) wide) extending north from Threadneedle Street. The front building contained transfer offices on the first floor, beneath which was an entrance arch leading to a courtyard. Facing the entrance was the 'main building' of the bank: a large Hall (24 m × 12 m; 79 ft × 40 ft) in which bank notes were issued and exchanged, and where deposits and withdrawals could be made. (Sampson's Great Hall, later known as the Pay Hall, remained in situ and in use until Herbert Baker's comprehensive rebuilding in the late 1920s.) Beyond the Hall was a quadrangle of buildings enclosing a 'spacious and commodious Court-yard' (later known as Bullion Court). On the south side of the quadrangle were the Court Room and Committee Room, on the north side was a large Accountants' Office; on either side were arcaded walkways, with rooms for the senior officers, while the upper floors contained offices and apartments. Beneath the quadrangle were the vaults ('that have very strong Walls and Iron Gates, for the Preservation of the Cash'); access to the courtyard was provided, by way of a passage leading to a 'grand Gateway' on Bartholomew Lane, for the coaches and waggons 'that come frequently loaded with Gold and Silver Bullion'. The pediment above the entrance to the main Hall was decorated with a carved alto relievo figure of Britannia (who had appeared on the common seal of the bank since 30 July 1694); the sculptor was Robert Taylor, who went on to be appointed Architect, in succession to Sampson, in 1764. Inside, the east end of the Hall was dominated by a large statue by John Cheere of King William III, lauded in an accompanying Latin inscription as the bank's founder (conditor); at the opposite end, a large Venetian window looked out on St Christopher's churchyard.
Expansion
In the second half of the 18th century the bank gradually acquired neighbouring plots of land to enable it to expand, and after 1765 new buildings began to be added by the bank's newly appointed architect Robert Taylor. North-west of the Pay Hall, overlooking St Christopher's churchyard to the south, Taylor built a suite of rooms for the Directors of the bank centred on a new (much larger) Court Room and Committee Room (When the bank was rebuilt in the 1920s-30s, these rooms were removed from their original ground-floor location and reconstructed on the first floor; they continue to be used for meetings of the bank's Court of Directors and Monetary Policy Committee respectively.). East of the Pay Hall, Taylor built a suite of halls and offices dedicated to the management of stocks and dividends, which more or less doubled the size of the bank's footprint (extending it as far as Bartholomew Lane). These rooms were centred on a large Rotunda, also known as the Brokers' Exchange, where dealing in Government Stock took place; around it were arranged four sizeable Transfer Offices, each corresponding with a different fund (as described in the 1820s: 'In each office under the several letters of the alphabet, are arranged the books on which the names of all persons having property in the funds are registered, as well as the particulars of their respective interests'). All these offices were top-lit, to avoid the need for windows in the external walls.
In 1782 the church of St Christopher le Stocks was demolished, allowing the bank to expand westwards along Threadneedle Street. The new west wing was completed to Taylor's design in 1786 (its frontage matching that of Taylor's earlier east wing): it housed the Reduced Annuities Office, the Cheque Office and the Dividend Warrant Office (among others). Immediately to the north lay the former churchyard of St Christopher le Stocks, which was preserved within the complex of buildings as a garden (known as the 'Garden Court'). North of Bullion Court, Taylor built a new four-storey Library, to house the bank's expanding collection of archives.
The Bank Picquet
The church's demolition had been prompted by the 1780 Gordon Riots, during which rioters reportedly climbed on the church to throw projectiles at the buildings of the bank. During the riots, in June 1780, the Lord Mayor of London petitioned the Secretary of State to send a military guard to protect the bank and the Mansion House. Thenceforward a nightly guard (the 'Bank Picquet') was provided by soldiers of the Household Brigade (a practice which continued until 1973). To house the guard Taylor built a barracks (accessed from a separate entrance on Princes Street) in the north-west corner of the site.
John Soane's rebuilding
Sir Robert Taylor died in 1788 and in his place the bank appointed John Soane as Architect and Surveyor (he would remain in post until 1827). Under his direction, the bank was further expanded and partially rebuilt, bit by bit but to a cohesive plan. A survey of the buildings, undertaken at the start of his tenure, identified some problems, which were promptly remedied by Soane: for example in 1795 he rebuilt the Rotunda and two of the adjacent Transfer Offices (the Bank Stock Office and the Four Per Cent Office), replacing Taylor's timber roofs, which were leaking, with more durable stonework. At the same time Soane was tasked with purchasing properties to the north-east, with compulsory purchase powers granted by the Bank of England Site Act 1793 (33 Geo. 3. c. 15), so as to enable the bank to expand in that direction as far as Lothbury. Between 1794 and 1800 he designed a cohesive set of buildings within the new irregularly-shaped site: he reconfigured Bullion Court and provided a new entrance route for vehicles from the north, which was named Lothbury Court; to the west of this he built a new Chief Cashier's office, and rooms for the Secretary and Chief Accountant; to the east he constructed a new Library block and added a fifth Transfer Office (the Consols Transfer Office) to the north of the other four.
The Brokers' Exchange in the Bank
In the late 18th and early 19th century, prior to the establishment of the London Stock Exchange, the Rotunda in the Bank of England was used as a trading floor 'where stockbrokers, stockjobbers, and other persons, meet for the purpose of transacting business in public funds'. Branching off from the Rotunda were 'offices appropriated to the management of each particular stock' containing books listing every individual's registered interest in the fund. The use of the Rotunda for trading ceased in 1838, but it continued to be used for the cashing of fundholders' dividend warrants.
Conflicts and credit crises
The credit crisis of 1772 has been described as the first modern banking crisis faced by the Bank of England. The whole City of London was in uproar when Alexander Fordyce was declared bankrupt. In August 1773, the Bank of England assisted the EIC with a loan. The strain upon the reserves of the Bank of England was not eased until towards the end of the year.
During the American War of Independence, business for the bank was so good that George Washington remained a shareholder throughout the period.
By the bank's charter renewal in 1781, it was also the bankers' bank – keeping enough gold to pay its notes on demand until 26 February 1797 when war had so diminished gold reserves that – following an invasion scare caused by the Battle of Fishguard days earlier – the government prohibited the bank from paying out in gold by the passing of the bank Restriction Act 1797. This prohibition lasted until 1821.
In 1798, during the French Revolutionary Wars, a Corps of bank Volunteers was formed (of between 450 and 500 men) to defend the bank in the event of an invasion. It was disbanded in 1802, but promptly re-formed the following year at the start of the Napoleonic Wars. Its soldiers were trained, in the event of an invasion, to remove the gold and silver from the vaults to a remote location, along with the banknote printing presses and certain important records. An armoury was provided on site at Threadneedle Street for their arms and accoutrements. The Corps was finally disbanded in 1814.
19th century
At the start of the 19th century a plan was enacted by John Soane for the further extension of the bank's premises, this time to the north-west (necessitating the rerouting of Princes Street, to form the new western boundary of the site). Much of the area of the new extension was taken up with steam-powered presses for the printing of banknotes (notes continued to be printed on site until the First World War, when the former St Luke's Hospital was acquired and converted into the bank's printing works). Soane continued in post until 1833; in the last years before his retirement he completed his rebuilding of Taylor's east wing and reconfigured Sampson and Taylor's street-facing façades to make the entire perimeter of the complex a coherent whole.
In 1811, an 'ingeniously contrived clock' by Thwaites & Co. was installed above the Pay Hall: as well as chiming the hours and quarters, it conveyed the time remotely (by means of brass rods extending a total of 700 feet (210 m) in length) to dials located in sixteen different offices around the site.
The 'panic of 1825' highlighted risks inherent in the bank's three-way split loyalties: to its stockholders, to the Government (and thereby to the public), and to its commercial banking customers. In 1825–26 the bank was able to avert a liquidity crisis when Nathan Mayer Rothschild succeeded in supplying it with gold; nevertheless, after the crisis, many country and provincial banks failed prompting numerous commercial bankruptcies. The passing of the Country Bankers Act 1826 allowed the bank to open provincial branches for the better distribution of its banknotes (at the time small country banks, some of which were significantly undercapitalised, issued their own notes); by the end of the following year eight Bank of England branches had been set up around the country.
From Wikipedia’s article on Bank of England, shared under CC BY-SA 4.0.3