chapter  5
14 Pages

Structural alternatives and constraints in the evolution of exchange banking

I In the United Kingdom the absence of general banking legislation providing joint stock banks with limited liability and government's recognition as early as the 1830s that 'exchange' banks connecting colonial or other trading partners with the home banking centre - what may be described as 'London and X' banks - incurred unusual risks forced the development of the colonial banking regulations administered under the ultimate authority of the Treasury. Policy was devised to offset the admitted risk by permitting limited liability but in tum countering this 'advantage' by imposing terms and conditions designed to protect both shareholder and 'constituent' or customer. These compromises were confirmed in charters, embodied with Treasury approval either in an act of the colonial legislature or in a Royal Charter. The act or charter carried with it certain potential privileges, including the right to receive local treasury business and to issue banknotes, subject, in the latter case, to any local prohibitions.