the world of private banking

44
THE WORLD OF PRIVAtE BANKING
Westminster Bank was ‘a big confession that the era of private firms has passed
and that the day of joint-stock banking is fully and finally acknowledged. It is an
avowal that one kind of banking must give way to the other, which is the better’.
The prediction did, of course, in the end materialize, though the process greatly
varied, whether in speed, extent or significance, depending on the country, region
or type of bank involved. The history of private banks during the onset of the
corporate economy, from around 1870 to 1914, does not fit easily into a simple
‘decline and fall’ framework of analysis. It is more complex, and therefore more
interesting, raising the question of the conditions of their survival, their lasting
economic significance, and their complex relationships with the joint-stock banks.
These questions are examined in this chapter. The main argument is that the
lasting significance of private banks can be explained both by the competitive
advantage which they enjoyed in some areas, and by the economic, political,
and socio-cultural context of late-nineteenth-century banking development. This
context, however, differed between countries, with the competitiveness of private
bankers varying accordingly. The comparative approach adopted here attempts to
account for these differences. The chapter is divided into five parts. After a brief
definition of private banks, the world of the haute banque is analysed in some
detail, followed by a shorter discussion of provincial private banks. A fourth part
considers the contribution of private bankers to banking development, and some
conclusions are proposed in a fifth and final part.
What is a Private Bank?
For the purpose of this study, private banks have been defined in terms of
ownership rather than activity. In the nineteenth century and during most of the
twentieth century, a bank was considered as a private bank if its owners were
also its managers. Such banks were usually family firms. Their legal form was
generally that of partnerships, or a general partnership, with partners having
unlimited responsibility; but there were also private limited companies and even
joint-stock banks whose directors retained the major part of the capital. The current
functional definition of private banking – portfolio management on behalf of very
wealthy individuals − only took shape in the last quarter of the twentieth century.
Beforehand, private banks were engaged in all types of activities: commercial
banking, investment banking, merchant banking, indeed universal banking, as
well as wealth management. Specialization in one or another activity depended on
strategic choices or on the constraints deriving from a specific banking system.
These various activities were performed at two different levels. The first level
was the world of the haute banque, the old established private banks mostly
involved in the financing of international trade and the issue of foreign loans – what
Quoted in T.E. Gregory, The Westminster Bank Through a Century, 2 vols (London,
1936), vol. 1, p. 283.