It is not easy nowadays to realise the. position of the early joint stock banks. At the present time many of them overshadow the Bank of England itself in the amount of their deposits and the magnitude of their transactions. But at the time they were founded they were outcasts, regarded as intruders both by the Bank of England and the private bankers, and without even any corporate legal existence, except as a partnership of all the shareholders, necessitating the enumeration of all the names of the shareholders in the smallest action brought by the bank. Moreover, they were in-experienced, and found a difficulty in obtaining on their directorate or managing staff, men who had a sufficiently thorough knowledge of the business of banking.

It is therefore not surprising that the business of the early joint stock banks was at first often carried on in a manner which left much to be desired, but notwithstanding their mistakes, it is largely due to them that we owe the development which especially characterises English banking. Deposit banking, with its great facilities for economising capital, has developed to a greater extent in England than in any other country, and this is to a large extent due to the fact that the London joint stock banks have been forbidden to issue notes, and have therefore exerted all their energies in fostering deposit banking, and that therefore cheques have to a large extent superseded notes in circulation. The early joint stock banks were all unlimited as regards the liability of the partners or shareholders for the debts of the bank. The shareholders of those country joint stock banks which were founded under the Act of 1826 were expressly declared to be liable in full for the debts of the company, while those established in London under the Act of 1833, being common law partnerships, were necessarily unlimited.

It has long been an established doctrine in English law that the partners of any trading or business firm are all personally and individually liable for the debts of the firm of which they are members. The doctrine was complete and far-reaching. If, after taking all the private property of the majority of the partners, the debts of the firm were still unsettled, and perhaps one partner remained solvent, he could be compelled to pay the whole of the remaining outstanding debts, if possessed of sufficient private means.

This was equitable enough in the case of private firms where each of the partners takes a personal share in the conduct of the business, but when joint stock companies came into prominence, the law regarded all the holders of shares as partners, and the doctrine of unlimited liability pressed rather hard on shareholders who had practically no control over the business policy of the company. In 1855, therefore, an Act was passed allowing trading companies under certain conditions to register themselves as limited liability companies, the shareholders being liable to the extent of their nominal holdings of shares, but no further.

Banks were, however, excluded from this privilege; it was thought that bankers were in such a responsible position, and were debtors to the public in such large amounts, that it was unwise to afford them any protection in this respect. Two years later, in 1857, a severe monetary crisis resulted in the failure of several banks, notably the Western Bank of Scotland. It was found that the wealthier classes declined to incur the risk of holding bank shares, and that a large proportion of the shareholders of defaulting banks were not possessed of sufficient means to contribute towards the debts of the company. In order, therefore, to attract a more substantial class of shareholders, it was found desirable, in 1858, to extend the privilege of limited liability . to such banks as cared to register under the Act. An exception was, however, made of the liability of shareholders for the note issues of those banks which circulated notes, and the shareholders of country banks are still fully liable for the amount of such issues.

Most of the large joint stock banks, however, held aloof, fearing that the limitation of the shareholders' liabilities would alarm the depositors in the banks, and result in a loss of business. But the collapse of the City of Glasgow Bank in 1878, and the complete ruin of most of the shareholders, caused such a panic among those who held shares in joint stock banks, that most of the banks were induced to register themselves as "limited." A new Act was passed in 1879, which created what is called "reserved liability." Under the terms of this Act, limited companies could increase the nominal amount of their shares, with a condition that a certain proportion of this nominal increase should not be called up except in the event of the liquidation of the company, this uncallable proportion of the share capital being termed "reserved liability."