The history of financial services
Take a look at the history of financial services in the UK since the 17th century and the increasing globalisation.
Use of bank notes
Receipts began to be issued but goldsmiths for valuables deposited. Later these receipts became known as bank notes. Merchants found that they could exchange these notes to settle their financial obligations – in effect, starting the use of paper currency in the economy. With the issuance of bank notes to support money lending, the goldsmiths became the country’s first banks.
Earliest known British cheque
The earliest British cheque was made payable to Mr Delboe for the grand sum of £400. It was dated “16th of February 1659” by merchant Nicholas Vanacker, to be drawn on City bankers Messrs Morris and Clayton.
Fire insurance was the first to achieve corporate status, with the creation of the Insurance Office. Some of the first fire insurance policies were issued on properties rebuilt after the Great Fire of London in 1666.
Precursors of clearing houses
Bank clerks started to meet in coffee houses or similar venues to set off the required cash movements relating to each cheque against others, with only the balance having to be paid in actual funds from one bank to another. These were the precursors of the clearing houses.These are financial institutions formed to facilitate the exchange of payments, securities, or transactions.
The Bank of England founded
The Bank of England was founded following war with France, initially to raise loans for wars. It was formed by a group of goldsmiths via a charter, ‘The Governor and Company of the Bank of England’.
The Bank of Scotland formed
The Governor and Company of the Bank of Scotland was established by an Act of the Parliament of Scotland on 17 July 1695. Its is the fifth-oldest surviving bank in the United Kingdom and is the only commercial institution created by the Parliament of Scotland to remain in existence.
Life assurance has been available in the UK since the late sixteenth century, when typically policies were only issued for a period of 12 month or for the term of an overseas voyage.
Bank of England gets monopoly in note-issuing
An act of Parliament was passed prohibiting any other bank with more than six partners from issuing bank notes. This effectively gave the Bank of England the monopoly in note-issuing among the large banks in England.
The Royal Bank of Scotland formed in Edinburgh
The Royal Bank of Scotland was chartered in 1727, with Archibald Campbell, Lord Ilay, appointed its first governor. On 31 May 1728, the Royal Bank of Scotland invented the overdraft. Today it is one of the retail banking subsidiaries of The Royal Bank of Scotland Group plc, together with NatWest and Ulster Bank.
Merchants started setting up their own private banks. The British Linen Bank was the first to establish a network of branches in several Scottish towns.
The impact of the industrial revolution
The industrial revolution caused an expansion of commercial banks outside London to provide funding.
Formation of the Stock Exchange
The formation of the London Stock Exchange itself occurred in 1760, and ----- when a number of brokers were thrown out of the Royal Exchange as a result of their poor behaviour.
The first clearing house
Around 1770, bank clerks met at The Five Bells tavern, Lombard Street in London – the first clearing house.
The Gambling Act of 1774
The Gambling Act of 1774 made it a requirement to have an interest in whatever was insured remaining unharmed! Otherwise unscrupulous people were resorting to foul play to collect the insurance. It is also known as The Life Assurance Act 1774. The Act prevented the abuse of the life insurance system to evade gambling laws.
There was a prolonged period of economic weakness at this time, with certain assets (particularly land) falling in value. The Bank of England came under pressure, with its cash reserves being depleted, largely due to the extensive borrowing by the Government to finance the war with France.
The first building societies were formed as ‘mutual’ organisations (i.e. owned by their customers or members).
The spread of banks
By now over 100 provincial banks were established outside London, and some specialist, private banks had been set up in London.
Insurance became widespread in the UK in the late eighteenth century onwards and remains the largest insurance industry in Europe and the second largest in the world.
Development of banking
By now, there were 400 banks outside London and 68 in the city, most of which has less than six partners.
Growth of banks
Start of the new, larger banks, some the result of mergers of the smaller ones.
Stock Exchange expansion
The nineteenth century saw the rapid expansion of the Stock Exchange in tandem with the Industrial Revolution and, in particular, the expansion of the mining industry and the emergence of the railway industry.
Trustees savings bank
A new form of saving banks for the less wealthy emerged. The first ‘trustees savings banks’ was established, by the Reverend Henry Duncan of Ruthwell for his Dumfriesshire parishioners.
A number of banking crises and high levels of inflation brought about consolidation and development of rudimentary money transmission services.
The London and Westminster Bank
The London and Westminster Bank opened as the first provincial bank to have branches in London. This was the birth of the banking system that we know today.
Printed bank notes
Banknotes were originally hand-written and although they were partially printed from 1725, cashiers still had to sign each note and make them payable to someone. Notes were fully printed from 1855.
The Tooley Street fire
The Tooley Street fire of 1861 led to overall claims of £1 million (a considerable amount at that time), and led to the insurance companies backing the creation of the London Fire Service, to which they made contributions.
The Stock Exchange
The development of the Stock Exchange in the first half of the twentieth century was dominated by the financial effects of the two world Wars, and by the worldwide economic depression in the 1930s. One major consequence was the rapid growth in the need for finance by the UK government, with the level of national debt thus rising substantially. A second consequence was the reduction in finance available for overseas investment.
The Stock Market Crash of 1929
The Stock Market Crash of 1929 occurred in October 1929. It started on October 24 and continued until October 29, 1929 when share prices on the New York Stock Exchange collapsed. It was the most devastating stock market crash in the history of the United States. This followed the London Stock Exchange's crash of September and marked the beginning of the 12-year Great Depression that affected all Western industrialised countries.
Foreign exchange controls
The introduction of constraints on the amounts of foreign currency that could be acquired by both individuals and companies – known as foreign exchange controls – reduced the scope for investment abroad. These controls were to remain in place for 40 years before they were abolished.
Bank of England nationalised
The Bank of England was nationalised by the labour government
Credit cards introduced
The first universal credit card, which could be used at a variety of establishments, was created by Diners’ Club in 1950. Another major card of this type, known as a travel and entertainment card, was established by the American Express Company (Amex) in 1958.
Magnetic ink character recognition (MICR) speeded up and reduced cost of cheque transmission.
A bankograph was installed in the Bank of NYC for deposits. It was withdrawn shortly thereafter due to a lack of customer acceptance.
Barclaycard was launched in June 1966, initially as a charge card but after the Bank of England's agreement to the offering of revolving credit, it became the first credit card in the United Kingdom in November 1967.
InterBank Card Association
The InterBank Card Association (now MasterCard) emerged – the first general purpose open loop credit card.
The first ATM was introduced in the late sixties.
Barclays installed a DACS automatic cash dispenser.
Speytec, a UK startup, introduced magnetic strips on cards.
Companies must buy into SERPS
The Social Security Pensions Act 1975 obliged companies either to contract into the State Earnings Related Pension Scheme (SERPS) or to provide their own scheme on at least equally good terms for their employees.
The Right to Buy scheme
Introduced by the Conservative government in 1979, Right to Buy allows most council tenants to buy their council home at a discount.
Privatisation of services
Until 1980, insurance brokers were allowed to own the managing agencies who manged syndicates. This was one of the issues dealt with by the Lloyd’s act of 1982, which enforced divestment of manging agencies and brokers.
The Social Security Act 1986
The Social Security Act 1986 gave a further boost to the pensions industry by allowing individuals to opt out of company schemes and take out personal pension plans. With many opting to buy their own products, the pattern of pension provision changed in the UK.
Liberation of the FS
The liberalisation of the FS in 1986 and 1987 gave freedom to banks and building societies to diversify and seek finance from wholesale markets.
Black Monday happened on Monday, October 19, 1987, when stock markets around the world crashed. The crash began in Hong Kong and spread west to Europe and then spread to the United States.
Until 1994, ‘names’ with unlimited liability were the only source of capital. Following huge losses incurred during the years of account from 1988 – 92 (largely resulting from claims relating to asbestos and pollution), most ‘names’ were either unwilling or unable to continue to provide capital. Access to corporate capital was therefore permitted.
Acquisitions and mergers
Further acquisitions and mergers, creating the ‘big five’ UK banks comprising Barclays, Lloyds TSB, RBS, HSBC and HBOS. Rise of investment funds.
PayPal is founded
PayPal is founded as ‘Fieldlink’ a security-faced company allowing users to store encrypted information on mobile devices, and the forerunner of digital wallets
eBay acquires PayPal for 1.5 billion dollars
State pension age rises
In 2006 the state pension age was scheduled to be raised in stages to 267 by 2040.
Financial crisis 2007-2008
The financial crisis of 2007–2008, also known as the global financial crisis is considered to have been the most serious financial crisis since the Great Depression of the 1930s.The crisis was followed by a global economic downturn, the Great Recession.
US Federal Reserve introduced quantative easing, followed by the Bank of England in 2009.
Funding for Lending
The UK treasury and bank of England established the ‘funding for lending’ scheme in July 2012 to boost lending to households and business, thereby stimulating spending and growth in the economy.
Metrobank launched – the first banking licence granted for 150 years
On the 24th June 2016 the results of the United Kingdom European Union membership referendum showed 51.9% of the public wanted to leave the EU. Brexit, the withdrawal of the UK from the EU, will have a complicated and long-term impact on the UK's financial service sector and the rest of Europe. The full impact on the UK depends on whether the process will be a "hard" or "soft" Brexit.