the world of private banking

172
THE WORLD OF PRIVAtE BANKING
The outstanding importance of several private banks for the mobilization
of foreign capital during the 1920s and particularly after the inflation contrasts
significantly with their generally declining involvement in industrial finance
before the First World War. One reason for their ability to raise foreign finance
more easily, more rapidly and on more favourable terms than the great banks arose
from their overseas connections. These stemmed from their tradition of conducting
mutual business across international centres, long-established kinship linkages
between the various cosmopolitan banking dynasties, and common behaviour
patterns resulting from the particular social pre-eminence of the international
banking elite. Second, the financing of international trade remained a domain
of the largest international private bankers. After the war, and particularly after
the inflation, the German great banks faced substantial internal problems. Their
managerial capacities were absorbed in handling these problems to a much greater
extent than the smaller and more flexible private banks. In addition, the restrictive
policy pursued by the Reichsbank after the hyperinflation forced the great banks
to shy away from risky ventures. Many private bankers – even those who, like
Hirschland, were not among the most important houses before 1914 – perceived
the unique opportunity for diversifying their business of financing international
trade through additionally negotiating international loans. During the stabilization
period of the mid-1920s private bankers predominated in this segment of the
finance markets. The great banks began to compete once more in international
finance only from 1926 or 1927. 43
The flowering of private banking during the inflation was thus not simply
illusory – this was true only for small local bankers, which had been large in
numbers, but had not even then been an important component of the financial
markets. Instead, the pre-1931 second flowering of the leading German private
banks was well founded, and there was no sign of a sudden fading. They were
able to utilize the niches of the universal banking system, that is, they provided
those services which neither the great banks nor the savings banks were able to
supply: besides their international contacts the private bankers’ inside knowledge
derived from their intimate contact with other bankers, diplomats, politicians
and industrialists as well as their fairly independent position as neither major
shareholders nor big creditors, while both qualified them for advisory services in
all financial and business matters.
The network of personal linkages among various big industrial concerns, and
between banks and industrial undertakings, which arose from the accumulation of
board seats in these companies, is more than simply a proxy of the private bankers’
importance in the financial markets. In 1906, leading bankers Louis Hagen (A.
Levy, Cologne), Ludwig Delbrück (Delbrück, Leo & Co., Berlin) and Eduard v.
Oppenheim (Sal. Oppenheim jr. & Cie., Cologne) held up to about forty joint-stock
company supervisory-board seats each. Hardly any great bank director held more.
Until the late 1920s private bankers continued to occupy a central position in the
43
Wixforth et al., ‘Niche’, p. 116.