Banking 1900-1990

Table of Contents

Early 20th Century

During the 19th century, bank branches penetrated the country and became involved in the increased trade and business. Deposit enchasing facilities and cheques grew in popularity. Up to 700 branches existed by the turn of the 20th century.

The number of branches doubled again in the 20 years before the Irish Free State was established. The boom in banking ended in the 1920s. There was a gradual reduction in the number of bank branches.

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 Much of this occurred during the First World War when gold sovereigns were withdrawn.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. Ulster Bank Limited was taken over by National Westminster Bank in 1917.

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

Irish Free State

Upon the establishment of the Irish Free State, there existed a relatively efficient banking system which was relatively advanced. It facilitated international trade and there was widespread confidence.

Prices declined in the 1920s and real purchasing power increased. Banks and authorities were anxious to preserve this confidence in view of the rapid inflation taking place in continental Europe, in particular Germany.

On the foundation of the state, the Irish banks had considerable sterling balances. There was free movement of capital between Ireland and the UK and the UK and the rest of the sterling area. There was also a relatively free capital movement between sterling area and most of the rest of the world.

Pre-Central Bank

The London’s financial institutions and markets acted as a lender of last resort for countries in the sterling area. In the the Bank of Ireland could rely on support from Bank of England either for itself or directly for other Irish banks, if had found it necessary to have resort.

In the middle 19th century, Irish banks relied little on the Bank of England or Bank of Ireland as they accumulated sterling assets and government securities and managed their liquidity from London. Liquid balances in London increased when external trade grew more rapidly than the rest of the economy. The servicing of loans associated with railway investment and transfer of rents decreased towards the end of the 19th century.

British currency notes whenever legal tender in Ireland was circulated alongside Irish currency notes and were always exchangeable at par. British sovereigns with the only form with legal tender in Ireland since the 1820s and they disappeared after the First World War.

Banks at Independence

The Royal Bank of Ireland exchanged its branches in Northern Ireland for those of the Belfast Banking Company in their Republic. Registers of e British government stock held by Northern Ireland residents were transferred to the Belfast branch of the Bank of Ireland.

Currency Commission & Central Bank

The most significant change in banking after independence was the establishment of the Currency Commission and ultimately the Central Bank of Ireland by the Irish Free State and later the Republic of Ireland.

The Central Bank of Ireland was established in 1943 (1942 Act) following a Commission Report from 1938. The Central Bank took over the functions of the Currency Commission in 1942 although it did not act as a Central Bank at first. It was given powers to guard the purchasing power of the country and control credit.

1960s Consolidation

Deposits increased after the Second World War. Bank deposits increased by a further £300 million in the 20 years from 1960 including savings banks deposits which increased to £160 million . (all Ireland figures).

Very little change in the structure of the banking industry occurred through the 20th century until the 1960s.Significant structural changes took place in the 1960s.

Banks became more international after he 1960. There was a tendency towards amalgamations and concentration into larger institutions by merger.

The Irish banks consolidated significantly in the 1950s an 1960s. The number of clearing banks decreased from eight to four. The Bank of Ireland took over the Hibernia Bank in 1958. It took over the Irish branches of the National Bank in 1955.

The Belfast Banking Company was taken over by the Midland Bank. The head office of the Provincial Bank was transferred from London to Dublin in 1953.

In 1966, AIB was founded through the merger of the Munster and Leinster Bank, the Provincial Bank of Ireland and the Royal Bank of Ireland Limited.

The post office savings bank and the trustee savings bank share fell from 20 to 10 percent of the savings market over the period. The post office savings banks share fell from 15 percent of the deposit market in 1965 to 3 percent in 1985.

1970s

The clearing banks accounted for over 70 percent of the market with short term savings in the early 1960. They effectively operated a cartel so that new entrants could not enter the market other than through takeover.

A number of foreign banks established wholesale banking services. Between 1965 and 1975 a number of European and North American commercial banks established subsidiaries dealing with wholesale banking. Many of these scaled down and some closed in the 1980s.

Ireland’s accession to the EU facilitated the establishment of branches and subsidiaries of EU banks in Ireland. At first, prior to the banking directives, they were domestically regulated.

The Central Bank’s supervisory powers increased significantly under the 1971 Central Bank Act. Reacting to external forces, the Irish banks introduced term lending in 1972. They established specialised subsidiaries and became involved in the interbank market.

The Irish bank’s clearing banks maintained a very high share of the market over 80 percent of the domestic market between the 1970s and 1980.

A number of banks established instalment credit subsidiaries to compete with subsidiaries of international entities undertaking instalment credit and leasing. The banks took steps to establish to foothold in the growing wholesale banking area.

Many established merchant banking subsidiaries with support from UK merchant banks in some cases. By 1975, subsidiaries of the clearing banks had nearly half of all of the non-clearing bank business.

Building Societies & Mortgage Credit

Building societies expanded significantly after 1960. By 1985, they accounted for 18 percent of the savings market up to 5 percent in 1965. Mortgage finance increased rapidly in this period reflecting the demographics of the population.

Building societies increased their branch network five-fold with 284 branches and 631 agencies by 1988. Three protracted strikes by the banks in the period 1966 to 1976 improved their position. Their share of savings increased to 22 percent by 1988.

By the mid-1970s, the clearing banks commenced introducing mortgage credit for house purchase. By the mid-1980s, they were competing with building societies. The 1986 Finance Act improved their competitive position in relation to savings.

In 1989 building societies were placed under the control and regulation of the Central Bank. Bank of Ireland acquired ICS Buildings society. By the late 1980s, the mortgage, finance share of building societies was55 percent with banks holding, the bulk of the balance. Credit unions increased their share of total savings significantly, to some four percent of total savings by 1988.

Banks in the 1980s

Irish banking evolved from the late 1960s from a position of passive membership of the sterling area. Employment in banking increased three-fold from the 1960s and 1980s.

The distinctions between clearing, merchant and industrial banking activities decreased. The management of the retail corporate treasury and overseas sections became more integrated.

Competition increased in the Irish banks in the 1980. They became increasingly involved in other financial services. They became more involved in managing pension funds, charities and private client’s wealth. They began managing collective investments and unit trust. They established assurance subsidiaries and began marketing insurance products as agents. Irish banks became involved more internationally and some established a presence abroad.