After having had a little break for a few weeks (blame various trips and the starting of school) history in the City is back with a two-part bumper edition, this time addressing the difficult topic of banking and its role in the creation of our modern understanding of the Square Mile. Our relationship with modern banks has been cast into the shade by the 2008 crisis, mis-selling of various products and the LIBOR scandal but, at its heart, having someone look after our hard-earned cash is a fundamental service that allows our economy to grind on. It’s also a service that we don’t think about a great deal and largely take for granted but it is inexorably linked to the development of the modern world (despite what certain regular readers who also happen to be Marxist professors might say). 

More importantly for this article, some of the stories associated with banks in the City are absolutely brilliant (and I’m not even counting the fact that I was chased down the street by an over-zealous security guard in the writing of this article). So where does it all begin?

There have always been “banks” in London but not in the way we view them today. In the medieval period they were really pawn shops that allowed you access to coin in exchange for goods. It is only in the 17th century that things became a little more ordered when the Goldsmiths became known as the “keepers of running cash”. They accepted gold from aristocrats in exchange for notes (which, of course, are what our bank notes are today – although has anyone actually seen a £20 note since lockdown began?).

The first real bank though was the Old Lady of Threadneedle Street, the Bank of England, which was founded in 1694. Like many things in England, it came about because of war and a desire of the government to get more money. Following the little remembered but fairly disastrous Battle of Beachy Head in 1690, the Royal Navy suddenly found itself temporarily without control of the Channel and a potential French invasion scare (one of many over the next 200 years) swept over the country. As did the desire to rebuild and strengthen the navy to ensure Britain wouldn’t lose control of the waves again. 

But where to get the £1,200,000 (an astronomical sum in those days) to do the job, particularly when the government’s credit was appallingly bad. Charles Montagu came up with the solution (standing largely on the shoulders of others including, ironically, the French). The Bank of England would be set up to loan the government the money (charging the extremely high rate of 8%) with subscribers taking the benefits and the organisation also being granted specific rights such as the ability to issue notes

The original bank (having borrowed Mercer Hall for some time) was set up in Walbrook Street – now the home of Bloomberg. It is worth a look today as it contains the Roman temple of Mithras and a very smart exhibition with it. Mithraeum was an all-male cult that worshipped the concept of a bull sacrifice. It sounds odd because it was but not much is known about it as it was extremely secretive. The temple itself isn’t a great deal to look at but some of the exhibits found with it are very impressive. Have you ever wanted to see a Roman door or a Roman sandal? Well, Bloomberg can fulfill that need.

By 1734, the Bank had moved to its current position in Threadneedle Street and it has stayed there ever since. Sir John Soane, arguably one of the greatest and most visionary architects of the 18th century reworked the building in 1788 but his building was torn down between 1925 and 1939 (save for the external curtain wall which is one of the more remarkable parts of the building). Perhaps not the greatest moment in British architectural history but apparently this new building has more space below ground than is contained in Tower 42.

During the Revolutionary wars of the 1790s the bank went through a troubling time of runs and general lack of confidence and other, more powerful entities came on the scene. One of the most famous of which was Barings Bank, now famous for Nick Leeson, the first rogue trader who entered popular culture. It has an extraordinarily rich history though being the world’s second oldest merchant bank having been founded in 1762. Its offices were originally in Cheapside before moving to 8 Bishopsgate in 1806 where they stayed until the collapse.

The political and economic power exercised by Barings is difficult to conceptualise today. To give some sort of example, in 1802 Napoleon was desperate for money to fight his war effort against most other continental powers (including Britain) and decided to give up France’s claims to large sections of North America in what we now know as the Louisiana Purchase. The (still incredibly young) United States bought the land from France for USD15 million (about 3 cents per acre) and it doubled the size of the country overnight. It is one of the greatest land purchases in history and if you look at the map of the United States today, it effectively amounts to the acquisition of the whole of the central third of the country. As an aside, the French didn’t really control any of this land and it was mostly settled by Native Americans, but European powers rarely troubled themselves with such details.

Barings were Napoleon’s UK bankers and acted as the in-between broker in the transaction. Napoleon transferred the land to Barings and Barings transferred USD3 million in gold to Napoleon. The rest of the purchase price was given in US securities (some of the first ever issued by the government) which Barings promptly bought from the French at a 13.3 per cent discount making an extremely tidy profit in the process.

Hard cash was what Napoleon wanted but it is estimated that it would cost USD1.2 trillion to do the transaction in today’s money. Barings was crucial to the deal despite Great Britain being at war with France and technically it was Barings that the US bought the land from as the broker, not France.

Not content with funding the French war against the British government, Barings also funded the United States in the short war against Britain in 1812. The fact that the British government let them do so is a testament both to the bank’s influence and the increasing importance that was put on the City’s role as a global financial centre. 

However, by the 1820s, Baring’s fortunes were beginning to wane somewhat and it was overtaken by Rothschilds – which will be the topic of my next article (along with the image of me being chased, very slowly, down a street in the City by a security guard). Until that time, it’s worth remembering that before banks were associated with the humdrum process of cash machines, mortgages and credit cards they were literally shaping some of the most powerful countries in the world.