Sept. 13 (Bloomberg) -- The recent public outcry over the behavior of the banking industry has led the U.K. government to create a Parliamentary Commission on Banking Standards to investigate the culture of the industry and report on lessons to be learned.
While they await submissions of evidence, the commission members might contemplate the outcome of an 18th-century inquiry with similar aims. Its object was the Bank of England.
In a country reeling from the loss of the American colonies, anxiety was rising over management of the state’s finances and growing indebtedness. Much like today, the public was intensely angry at supposed corruption among public officials, financiers and the directors of large joint-stock companies. In response, Parliament established a commission to inspect the public accounts. Around the same time, the state also started interfering in the affairs of the East India Company.
It was only a matter of time before the Bank of England, which was still privately owned, came under such scrutiny. So the bank decided to set its house in order before Parliament came knocking. From 1783 to 1784, an appointed Committee of Inspection toured the bank, observing workplace practices and interviewing staff. Their findings were recorded in two ledgers still preserved in the bank’s archives.
Modern readers would find much that sounds familiar.
Those 18th-century bankers worked long hours, were paid well and could earn bonuses. They engaged in office politics, back biting and sniping at colleagues. There were accusations of incompetence and drunkenness at work. The inspectors noted that some men were rude to customers or were too concerned with securing gratuities. Others, it appeared, were just “not very sharp” or were rather “old and worn out.”
Security was clearly a problem, too, with gates left open, drawers left unlocked and ledgers left out on desks all night. Safes and treasure chests were found to be insecure or locked with keys that were then tossed in an open drawer. The committee must have also raised eyebrows when it noted that brokers and stockjobbers at the bank felt free to look through ledgers detailing customers’ accounts.
Worse, the inspectors found that the bank’s clerks who did business at the Exchequer each day walked through the streets of London with more than 100,000 pounds in bank notes carried in a “small Tin Chest,” and that the printing plates for the notes were carried through particularly dangerous streets each day to a printer in Hatton Garden.
At the root of many of the worst problems that they found were two of the same failings that so exercise us today: incompetence and greed. With regard to the first, the committee observed that senior men had taken their eyes off the ball. They failed to exercise proper managerial control, didn’t demand sufficient respect from their staff and left the bank early each day, entrusting the most junior clerks with the task of securing the institution. The inspectors argued that the senior men should take “a more direct & acknowledged control” so they could “be held accountable for the conduct of those immediately under them.”
Equally worrisome was that many of the clerks who managed the transfers of bank shares and government securities were supplementing their wages by acting as brokers and jobbers. At the time, the main secondary market in securities was housed within the bank, making it simple for the clerks to take advantage of a captive clientele by offering their own brokerage services. Some clerks were even found to be in league with professional brokers and acting to ensure their customers got the best deals and were first in line when it came to registering transactions.
The inspectors were “decidedly of opinion that the practice ... is not only inconvenient & pernicious in itself, but that it may eventually lead to even fatal consequences by the powerful temptations it holds out to Men.”
Although the inspectors found much to complain of, they admired the efficiency and attention to public service shown by an organization that managed thousands of transactions a day with what appears to be a high degree of accuracy -- and did so with little banking technology beyond double-entry accounting, quill pens and balance scales. We are introduced to many men who, like the chief accountant, John Payne, thought that it was “undoubtedly his duty to do the business of the Publick with the Bank.”
The report also expresses absolute confidence in the value of the bank’s work. Hence the inspectors concluded their proceedings by contemplating “the immense importance of the Bank of England not only to the City of London, in points highly essential to the promotion & extension of its Commerce, but to the Nation at large, as the grand Palladium of Public Credit.” They asserted that they were “thoroughly persuaded that an Object so great in itself & so interesting to all Ranks of the Community, must necessarily excite care & solicitude in every breast.”
One wonders whether the bankers who will appear before the 2012 Parliamentary Commission on Banking Standards could still make such an assertion with a good conscience.
(Anne L. Murphy is a senior lecturer in history at the University of Hertfordshire. The opinions expressed are her own.)
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