How did banking develop from being seen as a ‘trade’ in the 1800s to a skilled profession? This extract from ‘Debtors to their profession – A history of The Institute of Bankers 1879 – 1979’ by Edwin Green sets out a brief history.
Banking as a ‘trade’
Traditionally, commentators on banking in England and Wales had described the business as a trade rather than as a specialist professional skill. In the later seventeenth century, for example, Sir William Petty, the political economist, explained that 'the Trade of a Banker' was 'the buying and selling of Interest and Exchange'. The business was 'a beneficial Trade, founded upon a good Opinion of the World, which is called Credit’.
This treatment of banking as a category of trade clearly reflected the structure and practices of the business. Like many other trades, banking was carried on in a small way by large numbers of private partnerships, and it was not unusual for the partners to maintain their banking interests alongside other commercial ventures. As a result the term 'banker' denoted ownership or part-ownership of a banking firm rather than any distinctive expertise; the private bankers of Petty's time operated with only a rudimentary knowledge of accountancy and law, and the training of newcomers to the business was on the same footing as working apprenticeship in other trades.
With the important exception of the Bank of England, the banking system of England and Wales continued to be dominated by private banking partnerships until the 1820s. The survival of this pattern restricted the range of skills which were required for banking work, mainly because the private firms concentrated their business in a small geographical area and dealt with a limited variety of financial transactions. After 1826, however, when new company legislation permitted the formation of join stock banks with publicly quoted shares, the salaried managers of the new banks began to emerge as a recognisable occupational group.
Unlike the private bankers, managers in many of the joint stock banks were faced with the responsibility of controlling relatively large networks of branch offices as well as supervising the routine work of head office departments. Economic expansion during the railway booms of the 1830s and 1840s was an exacting test of managerial and technical competence, but the managers of the joint stock banks were also required to master a complex framework of company legislation and to exercise close control over their banks’ balance sheets.
The development of these skills, partly by learning from the joint stock banking tradition in Scotland, enabled the new banks to displace or to absorb many of the old private bankers and to open offices in areas where there was no previous link with banking.
By winning the confidence of their shareholders and customers, the managers and branch managers of the new banks now took their place alongside other groups of professional people in the cities and towns of England and Wales.
By the mid-nineteenth century the directors and shareholders of joint stock banks expected to see men of proven ability and experience filling senior management posts.
Value of qualifications
Managerial appointments were often open to competition, and it was increasingly important that managers or potential managers should show evidence of their abilities. This growing emphasis upon managerial and technical expertise was clearly identified by the founders of the short-lived Banking Institute of 1851- 3 and the proposed Incorporation of Bankers of 1862. Despite the eventual failure of these two ventures, their recognition of the value of qualifications was a sign that banking skills were becoming more generally accepted as part of a complex business profession.
The transition was also mirrored in the changing use of the designation 'banker'. The title was effectively reserved to private bankers before the mid-nineteenth century, and the 2,000 'bankers' listed in the 1841 census represented no more than 10 per cent of the total number of banking employees. In the second half of the century, this distinction was abandoned as more and more managers and other senior officials in joint stock banks described themselves as bankers.
Although the rise of the joint stock banks opened up new career opportunities in banking, many of those working in the banks realised that the growing awareness of technical skills could be harnessed to a system of banking qualifications.
By the 1870s the initiative and much of the support for the introduction of qualifying examinations came from the junior managers and clerks of the banks. Their arguments were partly inspired by the conviction that qualifications in banking subjects would be helpful to the banks in the selection of managers and other senior officials.
The changing role of the bank clerk
The career structure of appointments in the joint stock banks, for example, made it possible for employees to advance steadily up the ladder from junior clerk to general manager; this opportunity was in marked contrast to the limited scope for promotion in the private banks.
At the same time, those who favoured the use of qualifying examinations recognised that the role of the bank clerk was rapidly changing.
In the 1860s and 1870s bank clerks were required to take on a heavier burden of responsibilities, including clerical work connected with the growing expansion of overseas banking business, the greater use of the cheque clearing system after the 1850s, and the growing complexity of book-keeping and legal documentation.
The performance of these duties demanded a minimum standard of technical competence throughout the clerical staff of the banks, and it was increasingly important to the directors and shareholders of banking companies that these standards of knowledge and efficiency were maintained to keep pace with changes in banking business. For these reasons, the introduction of qualifications for the assessment of bank officials' practical knowledge was of great concern to the clerks as well as to their employers and their managers.
When The Institute of Bankers was established in 1879, this breadth of support for its proposed qualification was a major advantage.
Accessible to all
The founders of the Institute, including senior bankers and the clerks who had advocated the introduction of a banking qualification in the 1870s, made certain that its role as a professional body was not in any restrictive. In contrast to professional associations which used their membership and qualification as a ‘licence to practice’, the Institute as launched on the understanding that its qualification would be accessible to many thousands of bank employees. This willingness to monitor standards, award qualifications, and provide study facilities at all levels of banking work quickly drew the Institute to the centre of the banking community in England and Wales and gave it important links in overseas banking.
With a deliberately broad base of membership, it was soon clear that the Institute’s development would be closely adjusted to changes in bank employment and banking business as a whole.
Extract from ‘Debtors to their profession – A history of The Institute of Bankers 1879 – 1979’ by Edwin Green, pp xvii –xxxi, published for The Institute of Bankers by Methuen & Co Ltd, March 1979
11 March 2019 marks our 140th anniversary and, to celebrate, we have lots of surprises in store.