Abstract
The origin of the British international banks can be traced back to the Bank of Australasia, the Bank of British North America, and the Colonial Bank established in British colonies such as Australia, Canada, and the West Indies in the 1830s. These banks were granted Royal Charter from the British government. Among the banking companies that entered Asia, the Oriental Bank Corporation was granted a Royal Charter for the first time only in 1851. This delay was attributable to opposition from the East India Company. After addressing the resistance of the East India Company, the greatest challenge for the British international banks in Asia was the decline in the silver price s from the late 1870s. Additionally, they had been forced to compete with international banks of other countries such as France, Germany, and Japan. In this chapter, we will focus on the British international banks that had entered Asia and provide insights into the banking business there. In particular, we will approach these issues by analyzing the internal accounting records of these banks. We will also examine the business activities of the banks in the New York financial market, which have not been examined hitherto.
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Notes
- 1.
Cain and Hopkins (2002), pp. 90–91.
- 2.
The founding of several of the largest and most successful Empire banks in the late 1830s may be explained largely in terms of the general popularity of overseas investment in England after the Napoleonic Wars; see Baster (1929) p. 1.
- 3.
British international banks demanded Royal Charters primarily for their formation into a legal corporation and limited liabilities for shareholders. Jones (1993) p. 19.
- 4.
Baster (1929), pp. 89–96.
- 5.
Suzuki (2012), pp. 89–91.
- 6.
The Bank of Ceylon was founded in 1841 and was granted a Royal Charter in that year. This bank was able to acquire a Royal Charter easily, because Ceylon was a Crown Colony of Britain and was outside of the jurisdictions of the East India Company. See Gunasekera (1962), pp. 24–25, Baster (1919), p. 104.
- 7.
Muirhead (1996), p. 8.
- 8.
Muirhead (1996), p. 20.
- 9.
Muirhead (1996), p. 64.
- 10.
Mackenzie (1954), p. 26.
- 11.
There were some banks that operated without a Royal Charter in India. These banks were not corporations, and the liability of their shareholders was unlimited. The Indian government did not receive banknotes from these banks. Muirhead (1996), p. 53.
- 12.
After the short bill (21 & 22 Vic. c.91) was passed in 1858, banking companies in Britain could be formed with limited liabilities except for note issues. See Nevin and Davis (1970), pp. 70–71.
- 13.
LJS Bank was the London bankers of CMBILC. It was CMBILC’s special relationship with LJS Bank which was central to many important aspects of CMBILC’s operations. Muirhead (1996), p. 172, p. 180.
- 14.
However, the expansion of its total assets reflected not only the boom in Bombay, but also the effect of the merger with Masterman, Peters, Mildred & Co. in 1864. Bankers’ Magazine, April 1865, pp. 503–504.
- 15.
- 16.
The Bank of Bombay was the presidency bank in India. The bank had a government shareholding until 1876. See Bagchi (1987), pp. 318–319.
- 17.
The Chartered Mercantile Bank, MBH 2368. HSBC Group Archives.
- 18.
CBIAC, MS 31519, London Metropolitan Archives.
- 19.
While looking back on the Bombay bubble, the chairman of OBC explained as follows: ‘the Directors have good reason to congratulate the shareholders that timely precaution in restricting credits and limiting business generally has prevented much actual loss which might otherwise have arisen, and has diminished the prospective risk necessarily attaching to current transactions in times of difficulty.’ Bankers’ Magazine, May 1865, p. 632.
- 20.
Bankers’ Magazine, April 1865, p. 505.
- 21.
Bankers’ Magazine, October 1865, p. 1278.
- 22.
Bankers’ Magazine, July 1866, pp. 789–792, and May 1867, pp. 501–509.
- 23.
China Mail, July 28, 1864.
- 24.
King (1987), pp. 70–71.
- 25.
The Yokohama branch was set up as the second branch in Asia in May 1866. King (1987), pp. 94–95.
- 26.
‘The result of the suspension of 21 banks connected with the East had been to reduce competition, so that the remaining banks could make a better thing of it.’ The 13th Ordinary Meeting of CBIAC, Bankers’ Magazine, May 1867, p. 511.
- 27.
North China Herald, August 25, 1866.
- 28.
The head office of HSBC was in Hong Kong, only 760 miles away from Shanghai and 1400 miles away from Yokohama and Singapore. On the other hand, the distance from Shanghai to London via the Suez Canal (opened in 1868) is 10,411 miles, which a steamer with the speed of ten knots would have required 44Â days to cover. Nishimura (2012b), p. 116.
- 29.
The banks that participated in the agreement were CBIAC, CMBILC, the Bank of Hindustan, China and Japan, the Delhi and London Bank, OBC and Comptoir d’Escompte de Paris. Their branches and agencies in the East did not buy and sell bills of exchange at any term exceeding four months’ sight from January 1, 1867. China Mail, August 23, 1866.
- 30.
Bankers’ Magazine, December 1867, p. 1207.
- 31.
China Mail, November 11, 1866.
- 32.
‘By October 1867 the associated banks were compelled to abandon their attempt to enforce the four months usance.’ Mackenzie (1954), p. 65.
- 33.
King (1987), p. 85.
- 34.
Bankers’ Magazine, December 1867, p. 1205.
- 35.
Bankers’ Magazine, November 1874, pp. 913–914.
- 36.
North China Herald, February 25, 1875.
- 37.
North China Herald, March 4, 1875.
- 38.
North China Herald, March 11, 1875.
- 39.
King (1987), pp. 188–189.
- 40.
King (1987), p. 216.
- 41.
The decision of the London Committee had been announced to the shareholders in August 1875; a month later, the Court of Directors appointed A.H. Phillpotts, director of London and County Bank, and E. F. Duncanson, T. and A. Gibb and Co., and Albert Deacon, partner in E. and A. Deacon and Co.; King (1987), pp. 211–212.
- 42.
King (1987), pp. 215–216.
- 43.
King (1987), p. 214.
- 44.
It is very difficult to determine which factors were decisive in the continual decline of silver prices, but one thing that is clear is that the fall is associated with a significant increase in world production of silver. See Nishimura (2012a), p. 60.
- 45.
Bankers’ Magazine, May 1879, p. 407.
- 46.
Bankers’ Magazine, June 1876, p. 454.
- 47.
To provide for the deficiency, the directors decided, after much consideration, to withdraw the sum of £ 175,000 from the reserve fund. They considered that one of the main objectives of the reserve fund was to meet such exceptional losses, and they adopted this strategy in preference to interfering with the current dividend. Bankers’ Magazine, May 1878, p. 429.
- 48.
Bankers’ Magazine, May 1879, pp. 414–416.
- 49.
One effect of telegraphic transfers has been to diminish to very great extent the acceptances of the British international banks. Bankers’ Magazine, May 1893, p. 735.
- 50.
‘Having said so much about the engagement we have inherited in Ceylon and Mauritius, it is but just to our predecessors to remind you that this very business was for many years the main source of the bank’s profits. These were the accounts that swelled the dividend that ran the shares of the bank up to prices’. Bankers’ Magazine, 1883, p. 1251.
- 51.
Price of Joint Stock Bank Shares, each volume of Bankers’ Magazine.
- 52.
Bankers’ Magazine, June 1884, p. 665.
- 53.
Economist, May 10, 1884.
- 54.
Bankers’ Magazine, June 1876, p. 453.
- 55.
Bankers’ Magazine, May 1879, p. 406.
- 56.
Bankers’ Magazine, May 1883, p. 522–523.
- 57.
Yokohama was exempted because of its comparative lack of deposits and local resources, as were Manila and Batavia, partly for the same reason and partly because their currencies were on a gold standard. Mackenzie (1954), p. 162.
- 58.
Economist, May 22, 1886.
- 59.
‘In the presidency of Bombay, some two or three years ago, there were only one bank, and some four or five banking agencies, presently there are no less than 23 banks and banking agencies, beside 10 or 12 financial establishments, which are all competing with us.’ Bankers’ Magazine, May 1865, p. 632.
- 60.
OBC chose a policy of maintaining a high dividend when the big loss of 1877 occurred. They considered that one of the main objectives of a reserve fund is to meet such exceptional losses, and they adopted this course in preference to interfering with the current dividend. Bankers’ Magazine, May 1878, p. 429.
- 61.
‘The opening of Suez Canal, the extension of telegraphy to China, the changes which these and the fall in the value of silver introduced into, or imposed on, a large part of the Eastern trade, and the extension of the internal trade of the East generally, made it necessary for all the exchange banks to increase their deposits if they would hold their own against their competitors.’ Bankers’ Magazine, May 1893, p. 734.
- 62.
Interest receipts from India were about £ 8 m, home charges and remittances much the same in 1880. Saul (1960), p. 55.
- 63.
Wilson (2000), p. 83.
- 64.
Wilson (2000), p. 86.
- 65.
Although India was not the first country to lead the way to a gold exchange standard, it was the first to adopt it in a complete form. Keynes (1913), p. 33.
- 66.
Anthomisz (1913), pp. 15–16.
- 67.
Spalding (1920), pp. 232–233.
- 68.
The Chinese government had to pay a huge indemnity to Japan because of the defeat in the Sino-Japanese War.
- 69.
Spalding (1920), pp. 199–200.
- 70.
Nishimura (2012a), p. 57.
- 71.
Gonjo (1993), p. 148, p. 156, pp. 161–164.
- 72.
Yago (2012), p. 146, p. 160.
- 73.
Akagawa (2009), p. 4.
- 74.
Kasuya (2012), p. 167.
- 75.
Wilkins (1976), p. 107.
- 76.
King (1987), p. 265.
- 77.
Mackenzie (1954), p. 218.
- 78.
Between 1899 and 1913, Britain’s share of world trade in manufactures fell from 34 to 31%, while that of Germany rose from 23 to 27.5% and the USA from 11.5 to 13%. Saul (1960), p. 30.
- 79.
See Footnote 18.
- 80.
Mackenzie (1954), p. 46.
- 81.
A 1914 New York banking law clearly stated the prohibitions on foreign bank branches. A foreign banking institution could establish an agency to do limited business, not including the issue of notes or the receipt of deposits. Wilkins (1989), p. 456.
- 82.
Brown (1940), p. 143.
- 83.
Brown (1940), p. 147.
- 84.
Brown (1940), p. 11.
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Kitabayashi, M. (2020). British International Banking. In: Nishimura, T., Sugawara, A. (eds) The Development of International Banking in Asia. Studies in Economic History. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55615-2_4
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