the world of private banking
the world of private banking
the world of private banking
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THE RISE OF tHE ROtHScHILDS 13<br />
discriminating against <strong>the</strong> Jewish business community. 44 In fact, <strong>the</strong> Rothschilds<br />
had been interested in insurance for some years, not surprisingly in view <strong>of</strong> <strong>the</strong><br />
high premiums <strong>the</strong>y <strong>the</strong>mselves had been obliged to pay to insure shipments to <strong>the</strong><br />
Continent before 1815. By founding <strong>the</strong> Alliance, Nathan seems to have wanted<br />
to break <strong>the</strong> cartel <strong>of</strong> three firms – Lloyd’s, <strong>the</strong> London Assurance and <strong>the</strong> Royal<br />
Exchange – which monopolized marine insurance in London.<br />
The significance <strong>of</strong> <strong>the</strong>ir involvement in insurance was partly that it acquainted <strong>the</strong><br />
Rothschilds with <strong>the</strong> rudiments <strong>of</strong> company formation. When <strong>the</strong>y began to involve<br />
<strong>the</strong>mselves in continental railways – a subject not dealt with here – <strong>the</strong>y <strong>the</strong>refore<br />
had some experience <strong>of</strong> <strong>the</strong> benefits <strong>of</strong> joint-stock structures. It is worth noting,<br />
however, that <strong>the</strong> nineteenth-century Rothschilds never regarded <strong>the</strong> joint-stock form<br />
as suitable for <strong>banking</strong> – especially investment <strong>banking</strong> <strong>of</strong> <strong>the</strong> sort undertaken by <strong>the</strong><br />
Crédit Mobilier and its imitators in <strong>the</strong> 1850s and 1860s – and remained committed<br />
to <strong>the</strong> <strong>private</strong>-partnership model until well into <strong>the</strong> twentieth century.<br />
Finally, it should be said that <strong>the</strong>y only <strong>of</strong>fered current-account and deposit<br />
<strong>banking</strong> services in special cases where <strong>the</strong>y wished to do a favour for an individual<br />
(see below) or State. By and large, <strong>the</strong>y disliked holding long-term deposits (like<br />
<strong>the</strong> so-called ‘fortress money’ left with <strong>the</strong>m by <strong>the</strong> German Confederation after<br />
1815), fearing <strong>the</strong> effect <strong>of</strong> sudden withdrawals on <strong>the</strong>ir liquidity. The Rothschilds<br />
favoured a high ratio <strong>of</strong> reserves to liabilities.<br />
If <strong>the</strong>re was a single ‘secret’ <strong>of</strong> Rothschild success it was <strong>the</strong> system <strong>of</strong> co-operation<br />
between <strong>the</strong> five ‘houses’ which made <strong>the</strong>m, when considered as a whole, <strong>the</strong> largest<br />
bank in <strong>the</strong> <strong>world</strong>, while at <strong>the</strong> same time dispersing <strong>the</strong>ir financial influence in five<br />
major financial centres spread across Europe. Essentially, <strong>the</strong> Rothschild bank was<br />
a family firm crossed with a multinational, with three notionally equal ‘houses’ in<br />
Frankfurt, Paris and London and two subsidiary branches (<strong>of</strong> <strong>the</strong> Frankfurt house)<br />
in Vienna and Naples. This system was regulated by <strong>the</strong> partnership agreements<br />
which were drawn up and revised every few years and which were, in effect, <strong>the</strong><br />
constitution <strong>of</strong> a financial federation. These agreements have never been studied<br />
properly; yet <strong>the</strong>y were <strong>the</strong> very foundation <strong>of</strong> Rothschild success.<br />
In <strong>the</strong> Hollywood version, Mayer Amschel bids his sons to fan out across<br />
Europe as he lies on his deathbed. In fact, <strong>the</strong> partnership evolved gradually and it<br />
was not until <strong>the</strong> 1820s that his bro<strong>the</strong>rs began to consider <strong>the</strong>mselves permanently<br />
settled in, respectively, Frankfurt (Amschel), Vienna (Salomon), Naples (Carl)<br />
and Paris (James). When members <strong>of</strong> <strong>the</strong> family were interrogated by <strong>the</strong> French<br />
police in 1809, Mayer Amschel was still calling himself <strong>the</strong> sole proprietor<br />
(Inhaber) <strong>of</strong> <strong>the</strong> firm, while his sons were merely his ‘assistants’ (Gehülfen). 45<br />
44<br />
Sir W. Schooling, Alliance Assurance, 1824–1924 (London, 1924), pp. 1f.; E.V.<br />
Morgan and W.A. Thomas, The Stock Exchange (London, 1962), p. 129; P.L. Cottrell,<br />
‘The Business Man and Financier’, in S. and V.D. Lipman (eds), The Century <strong>of</strong> Moses<br />
Montefiore (Oxford, 1985), pp. 29ff.; Kynaston, City, vol. I, p. 62.<br />
45<br />
CPHDCM, 637/1/4, Transcript <strong>of</strong> interrogation <strong>of</strong> Mayer Amschel and his family,<br />
10 and 11 May 1809.