the world of private banking
the world of private banking
the world of private banking
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
Introduction<br />
Youssef Cassis and Monika Pohle Fraser<br />
Continuity and Change<br />
The recent rise <strong>of</strong> <strong>private</strong> equity is a timely reminder <strong>of</strong> <strong>the</strong> persistence <strong>of</strong> <strong>private</strong><br />
– as opposed to corporate – interests within <strong>the</strong> <strong>world</strong> <strong>of</strong> finance. The demise <strong>of</strong><br />
<strong>private</strong> <strong>banking</strong> – understood, as it will be in this book, in <strong>the</strong> broad sense <strong>of</strong> <strong>the</strong><br />
word to include merchant and investment banks, as well as finance houses – has<br />
been predicted or retrospectively analysed many times over <strong>the</strong> past 150 years,<br />
and yet it has never really occurred. Of course, <strong>private</strong> <strong>banking</strong> has declined – if<br />
only because <strong>the</strong>re was a time when all banks, with <strong>the</strong> exception <strong>of</strong> central banks<br />
and a few o<strong>the</strong>r public institutions, were <strong>private</strong> banks. For a while, during <strong>the</strong><br />
second third <strong>of</strong> <strong>the</strong> nineteenth century, <strong>the</strong>y held <strong>the</strong>ir own against <strong>the</strong> emerging<br />
joint stock banks. They <strong>the</strong>n became increasingly marginalized without, however,<br />
losing all significance, depending on <strong>the</strong> country and <strong>the</strong> financial activity in which<br />
<strong>the</strong>y specialized – investment <strong>banking</strong> and wealth management, for example, have<br />
traditionally been better suited to <strong>private</strong> forms <strong>of</strong> ownership and control than<br />
commercial <strong>banking</strong>.<br />
The story <strong>of</strong> <strong>private</strong> <strong>banking</strong> could, however, be sketched in a different way.<br />
In many respects, <strong>private</strong> banks have always flourished in fairly narrow segments<br />
within <strong>the</strong> <strong>world</strong> <strong>of</strong> <strong>banking</strong> and finance, even during <strong>the</strong> golden age <strong>of</strong> <strong>private</strong><br />
banks, before <strong>the</strong> emergence <strong>of</strong> joint stock banks, even when Rothschilds and<br />
Barings were <strong>the</strong> ‘masters <strong>of</strong> <strong>the</strong> universe’. For <strong>the</strong> golden age <strong>of</strong> <strong>private</strong> banks,<br />
from <strong>the</strong> late eighteenth to <strong>the</strong> mid-nineteenth century, was an age when <strong>banking</strong><br />
was still very much in its infancy. Banks and bank <strong>of</strong>fices were few in number; <strong>the</strong>ir<br />
level <strong>of</strong> assets and liabilities was, by any measure, very low; a bank account was<br />
<strong>the</strong> privilege <strong>of</strong> a tiny elite; and <strong>the</strong> business <strong>of</strong> <strong>banking</strong> was mainly subordinate<br />
to <strong>the</strong> needs <strong>of</strong> trade and commerce. The rise <strong>of</strong> <strong>banking</strong>, as an economic pursuit<br />
in its own right and as an engine – as well as a product – <strong>of</strong> modern economic<br />
growth, is concomitant with <strong>the</strong> rise <strong>of</strong> <strong>the</strong> joint stock banks. Private banks, to<br />
be sure, played a decisive role in this development, both as forerunners (deposit<br />
<strong>banking</strong> in Britain and universal <strong>banking</strong> in Germany, for example, having <strong>the</strong>ir<br />
roots in <strong>the</strong> two countries’ <strong>private</strong> banks’ traditions) and as initiators (many a joint<br />
stock bank was established by <strong>private</strong> bankers). But <strong>the</strong>y were no longer <strong>the</strong> main<br />
players once <strong>the</strong> game took on a new dimension.<br />
From this perspective, <strong>the</strong> history <strong>of</strong> <strong>private</strong> <strong>banking</strong> displays far greater<br />
continuity than usually assumed and this continuity makes its history all <strong>the</strong> more<br />
relevant to <strong>the</strong> understanding <strong>of</strong> recent developments.<br />
Whe<strong>the</strong>r in <strong>the</strong>ir golden age, in times <strong>of</strong> decline or in eras <strong>of</strong> revival, <strong>private</strong><br />
banks have performed <strong>the</strong> same type <strong>of</strong> functions. They have been involved in