‘A Bank settled on a good Fund’: The Million Bank and Joint-Stock Securitisation during the English Financial Revolution

Abstract

The path of development taken by England during its ‘financial revolution’ was unique. During the eighteenth century, it was only in England that a liquid secondary market in government debt securities would emerge. The liquidity of the secondary market would provide crucial support to a significant programme of government debt financing; the ability of investors to easily sell their debt securities on this market provided investors with the confidence to invest in long-term debt securities and – over time – to do so in significant volume. Developments in government debt financing are often associated with the credibility of the government to commit to repayments. We can see from the example of the Dutch Republic, however, that credibility alone does not guarantee the emergence of liquid secondary markets. This thesis will argue that their emergence in England reflected the particular contours of the London capital markets. In England, the most successful early offers of government debt securities were those ‘securitised’ by joint-stock companies. In these transactions, joint-stock companies either extended finance directly to the government or restructured existing government debt securities. Investors purchasing new shares in these joint-stock companies provided the capital for these transactions; shares in these companies therefore became an alternative vehicle for holding interests in government debt. In structuring their offers, joint-stock companies were able to tap into distinctive local forms of financial knowledge and financial technology developed in London’s private markets. In making this argument this thesis will place particular attention on the experiences of one particular joint-stock company: the Million Bank. Emerging out of the financial and mercantile community of London, the Million Bank developed a core business as an investment company primarily holding government debt through a series of innovative securitisation and arbitrage schemes during the 1690s. The Million Bank’s schemes did not directly involve the government, and thus provide clearer visibility on the value of securitisation and financial experimentation than the three other companies primarily involved in such transactions: the Bank of England, the South Sea Company, and the East India Company.