Banking 1783-1900

Bank of Ireland

The first national bank in Ireland, in effect a prototype Central Bank, was established in 1783 by the Irish parliament.  This was the Bank of Ireland.  It was entrusted with the management of the exchequer account.  It issued the proceeds of its newly issued capital to the Irish exchequer.

In the next 40 years, the Bank of Ireland had a predominant influence in Irish banking even though it had no branches outside Dublin until after the mid-1820s.  It accounted for a major share of note issues, and it was the only large bank, i.e., with more than six shareholders, that could issue notes to the country.

With the Union in 1800, the management of the financing of the state moved from Dublin to London.  The Irish and British exchequers were amalgamated in 1817. Further  limitations are placed on it by  the Bankers Ireland Act 1825.

The Bank of England became the lender of last resort for the whole of the United Kingdom including Ireland.  The gold standard emerged internationally.

Prior to the middle of 19th century Bank of Ireland acted in a limited way as a lender of last resort.

BoI Preeminent Role

Bank of Ireland acted in a leadership fashion in establishing currency, note and check clearing arrangements between banks.  It sought to preserve its dominant position in relation to the issue of currency notes which were confined to a 65 miles radius of Dublin after 1821.

When the Bankers Ireland Act 1845 was passed the remaining privileges of the bank in relation to issue of notes in the Dublin region were removed.  This allowed note issuing joint stock banks in existence at the time to issue their notes in the Dublin region.  All note issuing banks could circulate their notes freely through the contrary after 1845. The 1845 Act sought to limit the increases in the circulation of private notes while increasing competition.

The Bank of Ireland is granted the sole right to handle the government’s cash operations.  A ceiling which had applied until  the mid-19th century of the interest they could charge of  five percent was abolished.

In 1855, it sanctioned the use of overdraft and in 1864 it commenced paying interest on its deposits.  It was also granted power to give credit secured by mortgage.

By the time the Irish Free State was established, the bank could develop as a commercial bank and did not become nor was it destined to become a Central Bank for the State.

Early 19th Century

Irish banking followed banking in the United Kingdom closely after the Act of Union .  Monetary and banking reforms after Napoleonic wars were extended to Ireland.  The central position of the Bank of England was strengthened in the 1840s and Bank of Ireland was weakened

Very few bank failures occurred and minimal losses to depositors occurred. Financial innovation proceeded through the 19th century.

Clearing facilities were established for cheques  Secured overdraft facilities were established. Currency notes in circulation increased to £6.4 million  by 1845.

Joint Stock Banks

There were a number of legislative changes in the 1820 which facilitated the growth of joint stock banking. The joint stock banks were owned by wealthy shareholders with unlimited liability.  This contrasted with single branch private banks which was limited to individuals with no more than six and began to be viewed as riskier.

Legislation in the 1820s allowed joint stock banks issue currency outside of radius of 65 miles in Dublin.  They were  also free to establish themselves in Dublin without issuing currency notes.  In this way, they could compete with the Bank of Ireland.

The Trustee Savings Banks were also introduced at that time.  There was a banking crisis in the mid-1830, arising from the failure of the Agricultural and Commercial Bank of Ireland, although none of its depositors lost.

Branch banks emerged in Ireland in the mid-1820s.  The number of banks outside Dublin had fallen to ten in the severely depressed economic conditions.  During the rest of the 19th century, bank branches penetrated  the country and became involved in the increased trade and business.  Deposit enchasing facilities and cheques grew popularity.  Up to 700 branches existed by the turn of the 20th century.

The Main Banks

Between 1824 to 1836 seven successful joint stock banks were established many of which remain today. In the early period, banks were associated with particular religious persuasions.  In the 19th century and until the middle of the 20th century, most banks were associated with a relatively small  group of society, wealthy landowners and more affluent  merchants.

Three Presbyterian supported banks in Belfast, two in Dublin and two with head offices in London which concentrated on the rest of Leinster, Munster and Connaught.

The first joint stock bank, the Northern Banking Company was established in 1825 in Belfast.  By that stage, the Belfast is becoming a major economic centre and was growing significantly.  The strong demand for banking facilities emerged.

In the Dublin region, the Hibernian Bank was established in 1825 challenging the monopoly of Bank of Ireland.  The Provincial Bank of Ireland was established the same year with  strong Scottish backing and a London head office.  It played a major role in promoting competition.

The Belfast Banking Company was established in 1825 and absorbed two remaining private banks that operated in the north of the country.

In 1836, the National Bank was founded by Daniel O’Connell.  It aimed to introduce banking more deeply into rural communities.  The National Bank also established a significant presence in England amongst Irish communities as well as in the City of London.  It was admitted to the London clearing banks committee in the 1850.

The Royal Bank of Ireland with the support of the Quaker community was established in 1836 in the Dublin region.  The Ulster Bank was established in 1836 with its head office in Belfast.  Its objective was to compete with of the two northern east banks  and with the Bank of Ireland and Provincial Bank of Ireland which were also establishing themselves in Ulster.

Ulster Bank moved south and established branches in Dublin and Sligo by the middle of the 19th century.  The Northern Banking Company opened its first Dublin branch in 1888 followed by the Belfast Banking Company in 1891.

Mid-Century Developments

By 1836, there were 130 branches throughout the country which is a ten-fold increase in the previous 10 years. The introduction of bank branches to towns provided banking services.

In 1836, banks notes amounted to approximately £5 million , while deposits are approximately four million .

In 1845, the joint stock banks were given the right to issue their own notes in the whole country.  Notes beyond £6.4 million  were to be backed by gold or silver.  This encouraged the growth of bank deposits and the circulation of sovereigns and Bank of England notes, rather than Irish bank note.

Few joint stocks banks of significance were launched after 1836.  The one exception was the Munster and Leinster Bank which was formed in 1885. Joint stock banks became incorporated between 1865 and 1869.  Their shareholders could not avail of  limited liability until 1879.

The Munster Bank was established in 1864 and expanded rapidly in the south of the country.  It established a presence in Dublin in 1870.  It was very exposed to the agricultural sector. The bank had a high level of lending to deposits and had to rely on Bank of Ireland for temporary assistance in 1885.

It closed its doors and was ultimately led to the incorporation of a new bank head quartered in Cork, the Munster and Leinster Bank which took over the assets without loss to the depositors.  The new bank was enthusiastically supported in the south of the country and grew significantly with a conservative lending policy.  It established branches in Belfast in 1918.

Savings Banks

The Savings Banks developed at the same period.  In 1844, the Savings Banks Act removed the  liability of trustees and managers thereby shaking confidence. Some 25 Savings Bank closed in the 1840s and in 1848, three savings banks collapsed. A select committee of parliament enquired into frauds in the latter case and legislation in 1849 increased the responsibility of trustees and provided for auditors

The post office savings bank was established in 1861 by statute.  By 1885, it exceeded the deposit of the trustee savings banks.  All deposits were invested in government paper until the 1930s when steps were taken to convert the foreign assets into Irish government securities.

A number of building societies were established in the period 1861 to 1883.  They did not play a significant role until the 1960s due to the agricultural dominance.

Late 19th Century to Independence

The basic structure of t banking remained unchanged from the 1880s. The number of branches doubled again in the 20 the years before the Irish Free State was established.

Currency notes rose from £6 million  to £6 million  in the same period.  Much of this occurred during the First World War when gold sovereigns were withdrawn.  There was significant inflation during the First World War.

Deposits of banks increased from £43 million  to £180 million in the same period at the clearing banks. Savings banks deposits increased from £7 million  to £17.5 million

The Dail established the National Land Bank in 1919.  It was taken over by the Bank of Ireland in 1926 and became the National City Bank Limited.  A major stake was purchased by Chase Manhattan Bank in 1968