the world of private banking

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THE WORLD OF PRIVAtE BANKING
When the big heavy industrial concerns appeared, the establishment of jointstock
credit banks became inevitable, since the resources of individual private
bankers soon became insufficient compared with the credit demand of big industry.
This did not mean, however, that private bankers became superfluous, whether
in the short or the long term. Industry and commerce were not confined to big
concerns and, in particular, medium-sized industry in the provinces relied on local
private bankers well into the twentieth century. Only by the turn of the century
did the larger provincial joint-stock banks begin to build up their regional branch
networks. For the local private banks the situation became additionally strained by
the First World War, when the savings banks developed as local universal banks
too. Thus, even before the banking crisis of 1931 this segment of private banking
had fallen victim to the concentration process in banking; but the leading private
bankers were hardly touched by this development.
The substantial decline in the number of private banks has led to an unwarranted
general overestimation of their relative decline in importance for the functioning
of the universal banking system. Until the end of the Weimar Republic, a
significant number of private banks was able to withstand the competition of the
great banks by supplying services which the latter were unwilling on principle
(because of the administrative centralization and the necessary bureaucratization
and hierarchicalization of management decisions), and at least at times (obtaining
foreign credits during the stabilization crisis) unable to provide.
This means that, first, we have to postpone the decisive weakening of the German
private banks to the 1930s, and second, that we have to provide an alternative to
the contemporary explanation that stresses the declining competitiveness of the
private banks in the long run. The evolution of the German universal banking
system did not render private banks generally superfluous. On the contrary, the
evolutionary development had created a division of labour in which a limited
number of private banks had gained an important position. Consequently, we need
additional non-economic, exogenous factors in order to explain the interruption of
this evolutionary process. In addition to the destruction of many niches, the most
important of these factors was the racist policy of the Third Reich.