the world of private banking

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