The second line of development was by the private country bankers. The notes of the Bank of England did not circulate to any great extent out of London, for the first branches of the Bank of England were not opened until 1826. The country banks, however, issued notes for quite small sums which circulated locally. In 1775 it was found necessary to forbid the issue of such notes for less than £1, and in the next year the limit was raised to £5. These measures were necessitated by the number of small tradesmen who added the business of banking to their other occupations, and issued notes for in-significant amounts. The consequences of the measure have been felt to the present day, for notwithstanding the temporary revival of £1 and £2 notes during the restriction of cash payments, and in spite of several later attempts at a revival of small notes, England remains almost the only commercial country without a circulation of bank notes below a sum equal to £5;

The third development of banking was that of the London private banks. These banks at first issued notes like the other bankers, in fact, the London goldsmiths' cash notes were the earliest form of such paper money in England. But they soon found that the competition of the Bank of England was too strong, and towards the end of the eighteenth century their issues entirely ceased. In place of this function they developed the system of deposit banking, and the London bankers were the first to issue printed books of cheques, to take the place of the informal letters, by means of which payments or transfers were at first made.

At the time of the resumption of cash payments in 1819, we have then these three groups of banks: the Bank of England, the only joint stock bank in the country, placed by its monopoly in a unique position as regards other banks; the country banks, limited to six partners, and almost entirely unregulated and unrestricted by the legislature; and the private bankers of London, most of them old established firms with good reputations, but whose note issues had entirely lapsed.

In 1825 occurred a serious financial crisis, and the weakness of the country banks aroused widespread comment. Almost for the first time the public began to realise the ill-effects of the monopoly of the Bank of England, and measures were at once brought forward to alleviate the evil.

First, the Bank of England were advised and authorised to open branches in some of the principal provincial towns, and to issue notes from these branches, the towns first selected being Gloucester, Manchester, and Swansea.

Secondly, the issue of notes under £5 was finally forbidden to the Bank of England as well as the country banks.

Thirdly, an important modification of the monopoly hitherto enjoyed by the Bank of England was effected by the Act of 1826, allowing the establishment of joint stock banks with the privilege of note issues provided they had no banking office in London or within a radius of sixty-five miles of London, and that they did not issue their notes at any place within such a radius. The larger towns outside the circle of sixty-five miles gradually availed themselves of this permission, and many of the existing country joint stock banks date from about this period.

Seven years later, in 1833, a clause was inserted in the Bank Charter Act of that year authorising the establishment of joint stock banks in London, provided they did not issue notes payable to bearer on demand. It will be remembered that the Act of 1708 and its complements had conferred upon the Bank of England the exclusive privilege of carrying on the business of banking with more than six partners, and had further defined this privilege as the right to issue notes to bearer on demand or at less than six months date. Doubt had been expressed in some quarters whether the Acts prevented a joint stock bank being established to carry on the business of a banker exclusive of the issue of notes, and this clause in the Act of 1833 was designed to decide the question. The immediate result was the foundation of the London and Westminster Bank in 1834, followed shortly after by the London Joint Stock Bank, the Union Bank of London, and the London and County Bank. The Act of 1833 further declared Bank of England notes to be legal tender for all sums above £5, except by the Bank itself and its branches.

It is well to note that the Bank Charter Act of 1833, which renewed all the privileges of the Bank, is still in force, its provisions having been expressly confirmed by the Act of 1844, and it is in many instances owing to the clauses of the former, that the issues of country banks from time to time lapse. There is an erroneous impression prevailing that the Act of 1844 provides for the extinction of the note issue of any bank which amalgamates with another, but this is not so. The Act of 1844 stipulates that "it shall not be lawful for any company or partnership now consisting of only six or less than six persons to issue bank notes at any time after the number of partners therein shall exceed six . . ." If, therefore, a private bank increases its partners to more than six, either by amalgamation with another private bank or with a joint stock bank, it loses its right of issue; but the Act of 1844 expressly preserves the right of issue in cases where the amalgamation does not result in an increase in the partners beyond six.

If two joint stock banks, either of which possesses a note issue, amalgamate, the Act of 1844 does not in any way restrict the right of the new bank to issue notes, but if either of the joint stock banks has an office in London or within sixty-five miles, or if a joint stock bank having a note issue amalgamates with a private bank in London or within the radius, the Act of 1833 applies, and the right of issuing notes lapses. The same result happens if a country joint stock bank with a note issue opens a branch in London, as for instance when the National Provincial Bank opened in London in 1867, and lost their authorised note issue of £442,371.