In 1694 England was losing a war it could not pay for. The fleet had been mauled by the French off Beachy Head in 1690, William III urgently needed a new navy, and the Crown's credit was so battered by decades of royal default — the 'Stop of the Exchequer' of 1672, when Charles II simply suspended repayments, was still a raw memory among London's lenders — that money men would scarcely touch it. Into the gap stepped a persuasive Scottish promoter named William Paterson with a scheme of beautiful circularity: subscribers would lend the government £1.2 million as a permanent loan at eight per cent interest, and in exchange would be incorporated as a bank — the Governor and Company of the Bank of England — with the right to take deposits and issue notes. The public subscription filled in under two weeks, more than 1,200 names deep, and the royal charter was sealed on 27 July 1694. The first Governor was Sir John Houblon, a City merchant of Huguenot descent.
Nobody involved thought they were inventing central banking. The Bank was a private, profit-seeking company whose founding purpose was simply to fund a war, and for generations it remained one bank among many — albeit the state's own banker. Its defining powers accreted by accident and crisis: management of the growing national debt; a dominant note issue that the Bank Charter Act of 1844 turned into an eventual monopoly on new banknotes in England and Wales; and, after repeated panics, the role of lender of last resort — a doctrine only properly articulated by Walter Bagehot in his 1873 classic Lombard Street. Quiz setters, take note: it is not even the oldest central bank. Sweden's Riksbank, founded in 1668, holds that title; the Bank of England is the second oldest — but it is the one the rest of the world copied.
Named by a cartoon
The nickname arrived a century later, in the Bank's darkest hour. By 1797 Britain was at war with revolutionary France; in February of that year a small French force landed at Fishguard in Wales — the last invasion of mainland Britain — and the scare sent depositors racing to turn paper into gold. With bullion draining away, the government ordered the Bank to suspend gold payments, a 'temporary' Restriction that lasted until 1821, and the Bank began issuing one-pound and two-pound notes for the first time. On 22 May 1797 the caricaturist James Gillray published a savage print: an elderly lady in a dress made of the new paper notes, seated on a locked chest of gold, being assaulted by the Prime Minister, William Pitt the Younger, whose hand is deep in her pocket. Its title — 'Political Ravishment, or The Old Lady of Threadneedle-Street in danger!' — gave the Bank the nickname it has carried ever since. The playwright and MP Richard Brinsley Sheridan is often credited with the underlying image, having described the Bank in Parliament as an elderly lady of great credit and long standing; but it was Gillray's print that made it stick.
Paterson himself enjoyed almost none of his creation. He quarrelled with his fellow directors and was out of the Bank within a year, going on to champion the Darien scheme — Scotland's attempt from 1698 to plant a trading colony on the isthmus of Panama. Darien collapsed amid fever, famine and Spanish hostility, swallowed a huge share of Scotland's liquid capital, and helped push the ruined kingdom towards the Union with England in 1707. The bank he founded, meanwhile, settled into the address that named it, moving to Threadneedle Street in 1734; from 1788 the architect Sir John Soane wrapped the site in the windowless curtain wall that still gives the Bank its fortress face, and 'as safe as the Bank of England' entered the language.
The private company lasted a surprisingly long time. The Bank was only nationalised in 1946, after two and a half centuries of shareholder ownership, and it waited until 1997 for the modern touch: operational independence to set interest rates, granted within days of a new government taking office. When it marked its tercentenary in 1994, the Bank put Sir John Houblon on the new £50 note — a founder honoured on the very instrument his institution had made respectable.
An emergency war loan, a private profit-making company, a nickname supplied by a satirical print: almost nothing about the world's model central bank was designed. Central banking was not so much invented as discovered — one crisis at a time, behind a windowless wall on Threadneedle Street.
Quiz nuggets
- The Bank of England received its royal charter on 27 July 1694, after raising a £1.2 million war loan for William III in under two weeks.
- Sweden's Riksbank, founded in 1668, is the only central bank older than the Bank of England.
- The nickname comes from James Gillray's 1797 print 'Political Ravishment, or The Old Lady of Threadneedle-Street in danger!'
- Founder William Paterson later promoted Scotland's disastrous Darien colony, which helped drive the 1707 Union with England.
- The Bank was nationalised in 1946 and gained operational independence over interest rates in 1997; first Governor Sir John Houblon appeared on the 1994 £50 note.