As war loomed in 1914, a major shift in Britain's banking sector was underway. One sign of it came on 17 July that year, when two of London's best-known private banks announced plans to amalgamate. The merger between Coutts & Co and Robarts, Lubbock & Co, now RBS constituents, went ahead later that year.
Although Coutts and Robarts belonged to a very specific segment of the banking sector, their decision was symptomatic of a broader transition. In England and Wales in particular, the preceding three decades had seen the emergence of a handful of banks with head offices in London and large, widespread branch networks. These banks had gradually absorbed many of the local, regional and private banks, so that by 1913 the remaining English shareholder-owned banks had an average of 156 branches, compared to just 5 per bank in 1850. The same trend could be seen in Scotland, albeit to a lesser extent, because the Edinburgh-based banks had begun developing Scotland-wide branch networks some decades earlier.
The mergers continued during the First World War, and gathered pace from 1917 onwards. The particular pressures of wartime, combined with expectations about post-war economic circumstances, intensified the process.
By 1917 and 1918, the amalgamations were no longer simple cases of big banks swallowing little ones. Now, both parties were often large, with overlapping branch networks and significant complexity. English banks also began to eye potential acquisition candidates in Scotland and Ireland, where the banking sectors had previously remained entirely separate, thanks to differing legislative backgrounds and business practices.
In 1917 one of Ulster Bank's leading Belfast-based competitors was acquired by an English bank. Such a deal vastly increased its resources and resilience, and Ulster Bank immediately knew that it must follow suit. Negotiations were entered, and quickly concluded, with London County & Westminster Bank, and Ulster Bank became its subsidiary later that year. It retained its own name and management, but could now call upon the advice, influence and financial clout of a much bigger partner.
The whole position of banking in the near future is obviously in the melting-pot, and to judge not only from our own experience here, but from what we see around us on all sides, the tendency to concentration is becoming more and more irresistible. It is clear that banks with resources spread over the whole country must be in a better position to meet post-war demands for credit than those which are confined to limited areas; and this is the position which in our own case we are seeking to strengthen
Walter Leaf of London County & Westminster Bank, February 1918
Other major mergers occurred within England, including one between our constituents National Provincial Bank of England and Union of London & Smiths Bank, announced at the end of 1917 and completed the following year. The bank thus created - which traded under the unwieldy name National Provincial & Union Bank of England - had over 230 branches across England and Wales.
By 1918, the so-called 'Big Five' banks had emerged: National Provincial, London County Westminster & Parr's, London Joint City & Midland, Lloyds and Barclays. Between them, they controlled two thirds of Britain’s banking business. Their supporters argued that their size brought stability, and meant they were more able to help Britain's growing businesses. Not everyone agreed.
The rapid consolidation of the banking sector caused concern, both in the City and in the wider population. Questions were asked in parliament, and in February 1918 the government set up a committee, known as the Colwyn Committee, to investigate and recommend a way forward. Senior men from a number of our constituent banks gave evidence, including Lord Inchcape from National Provincial and Walter Leaf from London County Westminster & Parr's. Rupert Beckett from our constituent Beckett & Co was a member of the committee.
The committee reported in May, and recommended that all future amalgamations should need approval from both the Treasury and the Board of Trade. The recommendations were accepted, and guidelines were established to help define the circumstances in which mergers should, or should not, go ahead. An advisory committee, in which Lord Inchcape took a leading role, was formed.
Despite the new framework, the banks remained keen on mergers. In 1918 National Bank of Scotland and Lloyds Bank built on an existing foreign exchange relationship by becoming affiliated. In effect, although they continued to trade separately, Lloyds became National Bank's owner, and remained so for the next 40 years.
In England, London County Westminster & Parr's Bank continued to be one of the most enthusiastic acquisition-seekers. It pursued plans to acquire Nottingham & Nottinghamshire Bank, one of the last of the regionally-dominant local banks. It also entered acquisition talks with Bank of Scotland.
On 5 December 1918, however, Walter Leaf wrote to John Rae at Bank of Scotland: ‘Dear Mr Rae, A thunderbolt fell last night.' He described how he had been called before the Bank Amalgamation Committee, and informed that the acquisition of Nottingham & Nottinghamshire Bank would only be authorised if he promised not to pursue any more such deals for at least two or three years. 'I remonstrated as warmly as I could...[but] the committee were acting under direct instructions from government.’ The Bank of Scotland deal was off.
Broader concern about bank mergers continued. In March 1919 the Committee of London Clearing Bankers agreed that no further amalgamations would be pursued until a Joint Stock Banks (Amalgamation Control) Bill had been considered by parliament. In the event that bill did not pass, but in 1924 new legislation formally blocked further mergers of the Big Five. The banks were divided into five groups: the Big Five, which could not amalgamate with any bank; the other clearing banks, which could not amalgamate among themselves; and the small London banks, country banks and Scottish banks, which could merge with any banks other than the Big Five.
The new limits did not not reverse the prominence the Big Five had already achieved; they would dominate British banking for decades to come. It did, however, create new opportunities for some smaller banks, including The Royal Bank of Scotland itself. When the government needed to seek new owners for troubled banks in the 1920s and 1930s, the Royal Bank was an attractive candidate - stable and prosperous but not part of the two limited categories of banks. In this way the Royal Bank acquired the small London private bank of Drummonds in 1924, and the much larger Williams Deacon’s Bank, with its sizeable branch network in north-west England, in 1930. On the eve of the Second World War in 1939 it also took over Glyn Mills & Co, with its important merchant banking business and long-established constituents Child & Co and Holt & Co. The Royal Bank’s growth had begun.