Bank articles, 1826

These stiff parchment sheets, permanently puckered from spending nearly two centuries in a tightly-folded bundle, mark a turning point not only for the Royal Bank of Scotland but for the shape of UK banking itself. This is the legal document announcing the creation of the first of a new breed of English bank: Lancaster Joint Stock Banking Co.

The document comprises 12 handwritten pages outlining the structure and rules of the new bank, but its most eye-catching part is at the end - actually the front page, because documents of this type were bound from back to front. Alongside ranks of official seals are the signatures of 60 men and women, each one an investor in the new bank. This long list of names holds the clue to what was so special about the new 'joint stock' banks.

Before 1826 in England and Wales, no more than six people could get together to form a bank. The only exception was the Bank of England. This hugely constrained banks' resources, making them frail under stress and also somewhat exclusive. In contrast, joint stock banks could be jointly owned by many people, bringing much-needed stability to the system and opening up the benefits of share ownership to many more potential investors. 

joint stock banks could be jointly owned by many people

Partnership banks were very vulnerable in times of crisis, and Britain in the early 19th century had plenty of crises. As the nation's economy shifted from an agricultural basis to an industrial-commercial one, a few rocky periods were almost inevitable. Rumours of bankruptcies, invasion or war could do immense damage as fearful customers rushed to withdraw money from banks, thereby causing the very collapse they feared. Panics in 1793, 1814, 1815 and 1816 did significant harm, but it was the devastating crisis of 1825, which closed over 60 banks, that finally persuaded the government to take action.

Scotland, with its larger shareholder-owned banks, had not suffered in the same way. The so-called 'Scotch system' clearly afforded greater stability, and so in May 1826 the Banking Co-partnership Act authorised the establishment of shareholder banks, known as joint stocks, in England and Wales (outside London). These new banks were to be led by boards of directors, who appointed professional managers. They were required to keep accounts and to declare annual dividends.

Almost immediately two banks were formed under the Act, but they were small enterprises, with only a handful of shareholders each. It was Lancaster Joint Stock Banking Co, which opened its doors on 23 October 1826, that really broke the mould with its 60 shareholders. Others soon followed, and within a decade there were almost 100 joint stock banks in England and Wales.