Abstract
This chapter intends to shed light upon the activities of British overseas banks’ London offices in the period from the mid-nineteenth century to the eve of the First World War (1913). The main sources of sterling for their banking operations can be classified into the following activities: receiving fixed deposits in Britain; collecting bills from acceptors that their Asian branches purchased and sent to London; and selling bills to bill-brokers or discount houses. British overseas banks effectively invested the funds thus raised in the following ways: purchasing bills of exchange drawn by British exporters to Asia, and sending them for collection to Asian branches; purchasing Indian Council Bills and sending them to Indian branches; sending gold and silver bullion to Asian branches; undertaking or subscribing bonds that Asian countries floated in London; depositing money into corresponding banks as cash reserves for paying telegraphic transfer and money exchange; and lending call money or short-term money. They carefully avoided exchange and credit risk, and benefited ultimately from these operations. The chapter will focus on a variety of transactions between British overseas banks and the London clearing banks. At first, the businesses of British overseas bank London offices will be scrutinized. The role of bills on London through the mechanism of the multilateral trade system of settlements will be shown. Then, the structure and function of the London discount market, which played a substantial part of circulating bills among financial institutions in London, will be described empirically.
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Notes
- 1.
Here, the terms of British overseas banks mean the banks that specialized their transactions mainly in Asia and are interchangeable with those of eastern exchange banks.
- 2.
Usually, they were sterling-denominated bills on London, drawn by exporters in Asia on importers in Britain as the means of payments of imported goods.
- 3.
An interest [clause] bill was a sterling-denominated bill of exchange drawn for payment of British export goods from Asian countries. On the face of the bill, there was an interest clause that the acceptors of this bill, namely an importer in Asia, should pay to the drawer, an exporter in Britain, an annual interest at approximately 6% for the period from the drawing bill to the receiving of the proceeds of the bill. In this way, those who purchased these bills were to be guaranteed to receive high returns, nearly 6%, by avoiding risks of fluctuations in exchange rates. Indeed, following the 1870s, many British exporters were inclined to suffer from the foreign exchange losses because of the decline of the silver price, when they drew silver-denominated bills of exchange on importers in Asia.
- 4.
In order to raise the home charges that India had to pay to Britain, the Indian Council in London sold Indian Council Bills in sterling. In India, these bills were paid bearers in rupees on demand from the treasury of the Viceroy of India.
- 5.
These bonds with high liquidity on the market were called the “Lombard Street,” a cash box. Their investments were committed to a London manager at Bobs or agent (Baxter 1883, p. 110).
- 6.
Gillett Brothers Discount Co. Ltd. (1952, p. 57).
- 7.
National Archives, TS 25/879, C. Crafer (Treasury Chambers), 27 September 1855.
- 8.
National Archives, National Archives, TS 18/434, Bank Charters, vol. ii, Oriental Bank Corporation: Charter of Incorporation, p. 200.
- 9.
National Archives, TS 18/434, Bank Charters, vol. i, Royal Charter of the Chartered Bank of India, Australia, and China, pp. 6–7.
- 10.
Report from the Select Committee on Chartered Banks (Colonial) Bill; together with the Proceedings of the Committee, Minutes of Evidence and Appendix, British Parliamentary Papers (hereafter B.P.P.), 1880, viii, Q. 5.
- 11.
Report from the Select Committee on Chartered Banks (Colonial) Bill; together with the Proceedings of the Committee, Minutes of Evidence and Appendix, B.P.P., 1880, viii, QQ. 118–9 (Welby).
- 12.
The Times, 4 March 1880.
- 13.
Report from the Select Committee on Chartered Banks (Colonial) Bill; together with the Proceedings of the Committee, Minutes of Evidence and Appendix, B.P.P. 1880, viii, Q. 10 (Lowe and Welby).
- 14.
Report from the Select Committee on Chartered Banks (Colonial) Bill; together with the Proceedings of the Committee, Minutes of Evidence and Appendix, B.P.P. 1880, viii, Q. 11.
- 15.
Mackenzie (1954, p. 146).
- 16.
National Archives, Kew, TS 18/434, Treasury Chambers (E. W. Hamilton), 26 March 1904.
- 17.
National Archives, Kew, TS 18/434, Treasury Chambers, 19 February 1909.
- 18.
Foster (1840, pp. 80–81).
- 19.
Foster (1840, p. 80).
- 20.
Report of the Committee of the Liverpool East India & China Association, 1853, p. 8 (quoted from Marriner 1961, pp. 201–2).
- 21.
The Bankers’ Magazine, 1852, p. 626.
- 22.
Alexander (1808, pp. 5 and 16).
- 23.
“Benjamin and Abraham were referred to at various times as bill brokers, money dealers, loan contractors, dealers in the funds, monied men, merchants and so on. They were in fact all of these. Had they lived fifty years later they would have been described as merchant bankers” (Cope 1942, p. 184); The Times depicted Abraham Goldsmid, as well as Francis Baring as “the pillars of the city” (29 September 1810).
- 24.
Cope (1942, p. 184).
- 25.
Report from the Committee of Secrecy on the Bank of England Charter; with the Minutes of Evidence, Appendix & Index, B.P.P., 1831–32, vi, Q. 4877.
- 26.
HSBC Group Archives, Chartered Mercantile Bank Archives, 1173, Chartered Mercantile Bank of India, London, and China, London; 15th July 1858, p. 2.
- 27.
The Financial Times, 18 February 1994.
- 28.
Gilbert (1939, pp. 16–17).
- 29.
Baxter (1883, p. 81).
- 30.
Bailey (1959, p. 271).
- 31.
HSBC Group Archives, Chartered Mercantile Bank Archives, 2400, Instructions, Current Account in Head Office, HO Circular to Branches of 9 October 1891.
- 32.
Northcote Cooke (1863, pp. 150–1).
- 33.
Banking Almanac, 1852, p. 161.
- 34.
Banking Almanac, 1861, p. 203.
- 35.
Banking Almanac, 1872, p. 251.
- 36.
Banking Almanac, 1852, p. 162.
- 37.
Banking Almanac, 1858, p. 196.
- 38.
See Footnote 34.
- 39.
The Bankers’ Magazine, 1861, p. 373.
- 40.
School of Oriental African Studies Library, David McLean Papers, MS 380401/13 (vol. iii), McLean to Jackson, 29 April 1881.
- 41.
Suzuki (2012, pp. 86–111).
- 42.
Mackenzie (1954, p. 162).
- 43.
HSBC Group Archives, Chartered Mercantile Bank Archives, 1172, Chartered Mercantile Bank of India, London, and China, London; 15 July 1858, pp. 4–5.
- 44.
King (1987).
- 45.
School of Oriental and African Studies Library, MS 380401/13 The Private Letter Books of David McLean, vol. iv, David McLean to Thomas Jackson, 30 June 1882.
- 46.
School of Oriental & African Studies Library, MS 380401/13, The Private Letter Books of David McLean, vol. v, David McLean to J. Walter, 12 March 1886.
- 47.
HSBC Group Archives, London Joint Stock Bank Archives, General Meeting of 1879—84th Report.
- 48.
Report from the Select Committee on Bank Issue; together with the Proceedings of the Committee, Minutes of Evidence, & Appendix, B.P.P., 1875, ix, QQ. 7318 and 7366 (W. H. Crake).
- 49.
Gregory (1936, pp. 270–1).
- 50.
- 51.
Report from the Select Committee on Bank Issue; together with the Proceedings of the Committee, Minutes of Evidence, & Appendix, B.P.P., 1875, ix, Q. 7049 (John Smith).
- 52.
Report from the Select Committee on Bank Issue; together with the Proceedings of the Committee, Minutes of Evidence, & Appendix, B.P.P., 1875, ix, QQ. 6886 and 6888 (John Smith).
- 53.
The Times, 5 October 1878.
- 54.
The Times, 19 December 1878.
- 55.
The Times, 17 October 1878, 15 January and 21 March 1879.
- 56.
This Bank undisclosed its acceptance amount.
- 57.
The Statist, 9 November 1878, pp. 205–7. The Statist calculated similar figures next year and confirmed a same tendency (20 September 1879, pp. 71–2).
- 58.
Report from the Select Committee on Bank Issue; together with the Proceedings of the Committee, Minutes of Evidence, & Appendix, B.P.P., 1875, ix, Q. 7035 (John Smith).
- 59.
The Statist, 27 September 1879, p. 96.
- 60.
See Footnote 59.
- 61.
The Times, 18 July 1894.
- 62.
The Times, 22 December 1890.
- 63.
Andree (no date, p. 87).
- 64.
Muirhead (1996, p. 180).
- 65.
HSBC Group Archives, Chartered Mercantile Bank Archives, 1173, Chartered Mercantile Bank of India, London, and China, London; 15th July 1858, p. 12.
- 66.
HSBC Group Archives, London Joint Stock Bank Archives, Board Minutes, B, 23 March 1854.
- 67.
HSBC Group Archives, London Joint Stock Bank Archives, Board Minutes, B, 30 March 1854.
- 68.
HSBC Group Archives, Chartered Mercantile Bank Archives, 1228, The Agreement between The Mercantile Bank & London Joint Stock Bank, 1893.
- 69.
HSBC Group Archives, Chartered Mercantile Bank Archives, 2372, General Balance—Precise Financial Position of 3 February 1893.
- 70.
HSBC Group Archives, Chartered Mercantile Bank Archives, 2400, Drawing on London Office, HOGA of 7 March 1890; 2183, Drafts—Usance, no date.
- 71.
HSBC Group Archives, Chartered Mercantile Bank Archives, 2400, Instructions, London Joint Stock Bank, HOGA of 5 May 1882.
- 72.
HSBC Group Archives, London Joint Stock Bank Archives, Board Minutes, B, 19 April 1855; C, 6 October 1859; C, 6 November 1862.
- 73.
HSBC Group Archives, London Joint Stock Bank Archives, Board Minutes, D, 1 April 1869, 17 February 1870 & 12 January 1871.
- 74.
‘Enquiry into the Circumstances that have occasioned the Present Embarrassments in the Trade between Great Britain and the United States of America’, The Edinburgh Review, LXV, July 1837, pp. 229–30.
- 75.
The Times, 23 July 1875.
- 76.
School of Oriental African Studies Library, David McLean Papers, MS 380401/12, vol. iv, McLean to Vacher, 1 February 1871.
- 77.
School of Oriental African Studies Library, David McLean Papers, MS 380401/13, vol. ii, McLean to Thomas Jackson, 14 February 1879.
- 78.
School of Oriental African Studies Library, David McLean Papers, vol. iv, McLean to Jackson, 15 February 1884.
- 79.
Suzuki (1994, p. 31).
- 80.
HSBC Group Archives, City Bank Archives, 293/1, Arrangements Book, Chartered Bank of India Australia & China; CLC/B/207/CH03/01/08/007, Negotiations with the City Bank, 1857.
- 81.
HSBC Group Archives, Chartered Mercantile Bank Archives, 2400, Instructions, Endorsement on Bills, HOGA of 4 December 1891.
- 82.
Gillett Brothers Discount Co. Ltd. (1952, p. 43).
- 83.
Gillett Brothers Discount Co. Ltd. (1952, p. 20).
- 84.
Gillett Brothers Discount Co. Ltd. (1952, p. 20).
- 85.
Gillett Brothers Discount Co. Ltd. (1952, p. 20).
- 86.
The Times, 10 May 1884 and others.
- 87.
The North China Herald, 2 June 1882, p. 600.
- 88.
School of Oriental & African Studies Library, David McLean Papers, MS 380401/13 (vol. v), McLean to Jackson, 14 January 1885.
- 89.
Okada (1930, p. 101).
- 90.
Schneider et al. (1992, pp. 100 and 107); The Economist, 1885.
- 91.
Ishikawa (ed.) [Otohiko Majima] (1907, p. 67).
- 92.
King (1936, reprinted in 1972, p. xiii).
- 93.
Guildhall Library, MS 24701, Gillett Brothers & Co. Archives, Lecture given to the Central Banking Course at the Bank of England, 21 April 1959, by Ronald B. Gillett.
- 94.
Evans (1852, p. 5).
- 95.
Jaffé (1904, p.78).
- 96.
pp. 167–8.
- 97.
Federal Reserve Bank of New York Archives, Benjamin Strong Papers, 1000.2, Strong Diary of European Trip, 13 March 1916. He called on Charles Addis and H.D.C. Jones, HSBC, and heard that “Sir Charles is quite keen about the development of our [New York] bill market which he talks is necessary and should be promoted. He believes that New York must carry some part of the load for financing the World’s commerce and particularly them. Says it would be of great value to them to have their endorsements recognized by the Federal Bank of New York”.
- 98.
Bagehot (1978, p. 53); Thomas Richardson’s evidence at the Bullion Committee (Minutes taken before the Select Committee on the High Price of Gold Bullion, B.P.P., 1810, iii, p. 124). However, now, in terms of the London discount market implied in the nineteenth century, there is no longer such a market. On 22 December 1998, the last discount house returned its license to the Bank of England. Sir Roger Gibbs, a former Chairman of the London Discount Market Association, said “it was the emergence of screen-based trading which finally killed off the tradition” (The Financial Times, 23 December 1998).
- 99.
- 100.
King (1936, reprinted in 1972, pp. 281–2).
- 101.
Guildhall Library, MS 18213, National Discount Co. Archives, Copy Text of a Talk on the History & Practice of Discount Banking.
- 102.
Sayers (1968, pp. 44–6). Unfortunately, the “London List” have not survived at its archives.
- 103.
The Times, 31 March 1884.
- 104.
Sayers (1968, pp. 47–8).
- 105.
Sayers (1968, pp. 57–8).
- 106.
Saul (1960).
- 107.
Gillett Brothers Discount Co. Ltd. (1952, pp. 49–58).
- 108.
Gillett Brothers Discount Co. Ltd. (1952, p. 16).
- 109.
- 110.
Galbraith (1984, p. 83).
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Suzuki, T. (2020). British Overseas Banks’ Activities in the London Financial Market Before the First World War from a View Point of Bill Transactions. 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_5
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