1834-36: Major Banking Expansion In Ireland

The short-lived Agricultural & Commercial Bank of Ireland was founded in 1834, suspended payments in 1836 and struggled on until 1840.  It was the first Joint-Stock Bank in Ireland to fail but it was not its failure (in itself) that made headlines but the manner of its failure.

When founded, in 1934, its initial funding of £5 million exceeded the combined ‘nominal capital’ of the other 4 banks (Northern Bank, Belfast Bank, Hibernian Bank and Provincial Bank) operating in Ulster by over £1 million.  Their competitors shares were valued at over £100 each, whereas the new Agricultural & Commercial shares were valued at £5 each – thus allowing (smaller) investors of modest means an opportunity to participate.

Its publicity machine bragged that it would open 300 branches throughout the UK and they based their business plan on the model used by the Northern & Central Bank of England (also established in 1934) who had opened 40 branches its first year at £10 a share.

• Until the A&C launched, all Joint-Stock Banks opened at a minimum of £100 per share
• This effectively barred small investors from getting into banking
• Banking in the early 19th C Ireland was a wealthy man’s game
• Small (inexperienced) investors flocked to buy shares and its successful launch was assured

Initially the Agricultural & Commercial opened branches throughout the south and west of Ireland.  In these areas, it competed directly with the Bank of Ireland, the National Bank of Ireland and the Provincial Bank of Ireland but, since it’s publicity machine emphasis the ownership, share capital and management was coming from London for these three banks, the people of the south and west of Ireland were only too pleased to have a home-grown alternative, owned by small businessmen (artisans, farmers and the like).

1838 Agricultural & Commercial Bank of Ireland, One Pound, 15 September 1838, Enniscorthy

This tactic was redundant in Ulster where the Belfast Banking Company was locally owned, locally run and very much on the side of the small Presbyterian businessmen and very popular as a result.  Instead of being locally run, it was decided to run any new branches in Ulster from Dublin.  There was also a new rival in the guise of The Ulster Bank – who also opened at £10 a share.  This gave additional confidence to the shareholders that the idea of £10 a share was not a problem, despite worries in London banking circles that a crisis similar to that of 1924 was about to happen again, i.e. a speculative boom that was about to crash.

• By mid-1836 there was a wide range of exciting shares to invest in (apart from the Irish Banking and Railways)
  • Mining, China Clay Works, Steamships and many other attractive schemes
  • This, in turn, triggered a boom in Joint-Stock Banks who were lending to speculators in other sectors
  • In Belfast, firms of local stockbrokers began to appear.

1836-37: Major Banking Crisis in Ireland

By August, the Bank of England in London had raised its interest rate by 25% in an effort to quell a speculation ‘boom and bust’ scenario but the Bank of Ireland refused to follow – keeping its ‘discounted rate’ low, thus fueling local speculation.  In October 1836, the Bank of Ireland suddenly raised its rate by 25% (matching the Bank of England rate) in response to the publication of the Agricultural & Commercial’s balance sheet.   Although there were doubts about the solvency of Agricultural & Commercial for several months, these were largely ignored by shareholders and investors who could only see huge potential ‘paper profits’ in the near future.

• The Agricultural & Commercial suspended payments in November 1836
• About the same time, its model, the Northern & Central Bank of England also defaulted on payments
  • The small investors who ‘bought into’ the success of the other Joint-Stock Banks lost all of their money
    • Their trust in the ‘respectable gentlemen’ that managed the new branch in Belfast was misplaced
    • Many small investors could not even afford to travel to Dublin for the E.G.M.
      • The gold deposits that were to ‘back’ the new Belfast branch were wholly inadequate
      • The initial £15,000 worth of gold (in July) had dwindled to £500 by November
      • Apparently, it had been transferred to other branches in Ulster to support them
  • The Hibernian Bank then refused to pay drafts, notes and bills of the Belfast Bank and the Ulster Bank
    • This caused a run on both banks’ notes
    • Despite them lodging deposits with Hibernian, their notes remained unpaid by Hibernian
    • This was an obvious attempt to use the Agricultural & Commercial crisis put them out of business
      • Both Belfast-based banks terminated their agency agreement with Hibernian
      • Both banks survived
    • The Agricultural & Commercial Bank branch network in Ulster collapsed
    • The Agricultural & Commercial Bank elsewhere struggled on but, eventually, failed

Following the collapse of confidence in the Agricultural and Commercial Bank, the Bank of Ireland was forced to intervene by ‘helping out’ all joint-stock Irish banks to a total sum of £0.5 million – a huge sum in those days.  The effect on Irish business and the local economy was devastating :-

• Branches refused overdrafts, unless authorised by their head office (delayed decisions, negative decisions)
• Many local branches closed and previously growing towns suffered economic setbacks
  • The Commercial Crisis of 1836-37 led to the Depression of 1839-43
  • The Bank of Ireland allowed Thomas Mooney’s bank to fail (deemed not worth saving)
  • The banking expansion of 1834-36 came to an abrupt halt
    • Only the newly formed Ulster Bank expanded

1839 30 shillings Joint-Stock Banks, Agricultural & Commercial Bank of Ireland, Thirty Shillings, 5 January 1839, Enniscorthy

The 1840s were a disaster for Ireland – both north and south.

• A depression in America shrank Ulster’s staple export of linen
• A general commercial malaise in England didn’t help
• And then, the Great Potato Famine arrived !

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