the world of private banking

PRIVAtE BANKS AND tHE ONSEt OF tHE CORpORAtE EcONOmy 45
is known in Britain as merchant banking. The second level was the less glamorous
world of country banking: the local and regional banks which provided banking
and financial facilities to small and medium-sized businesses in the regions.
The World of the Haute Banque
The decline of private banks was nowhere steeper than in Britain – with less
than forty still in existence at the turn of the twentieth century, as against several
thousands in countries such as France and Germany. Yet nowhere did private bankers
flourish more than in the City of London. This paradox reflects the peculiarities
of the English banking system: its extreme specialization and the divorce between
domestic and international banking, still prevailing in the late nineteenth century.
In Britain, the decline of private banks was the decline of private deposit banks,
which had continuously lost ground ever since the appearance of the first jointstock
banks in the late 1820s. However, the largest, richest and best connected
houses were able to resist until the last decade of the nineteenth century. This
group mainly consisted of the major London private bankers, whether in the City
(Glyns, Barclays, Smiths) or the West End (Coutts), who formed an integral part
of the banking aristocracy – another name for the haute banque.
The private banks’ problem was that they were losing much of their significance
as one of the wheels of the English banking system: their functions were almost
identical to those of the joint-stock banks, competition was stiffening and size
was increasingly becoming a matter of concern as a result of the amalgamation
movement which gathered pace in the 1880s and, especially, the 1890s. In addition,
as the small provincial banks were absorbed by the big joint-stock banks, London
private bankers were progressively deprived of one of their basic activities, which
was to act as London agents for the country banks. In the end, they had to give
way: the number of private banks that were members of the London Clearing
House decreased only slightly between 1870 and 1890, from 13 to 10; it then fell
sharply to five in 1891, and to one in 1914.
However, for private bankers engaged in international finance, the 1870s were
the dawn of a golden age, which was to last until the First World War. Far from
declining or simply resisting the trend towards consolidation, merchant bankers
– the other component of the English haute banque – expanded enormously the
scale of their activities, taking advantage of the pivotal role played by the City of
London in the growth and globalization of the world economy. London’s position
as the financial centre of the world meant, first, that the bulk of world trade was
financed through the medium of bills of exchange drawn on London; and second,
P.L. Cottrell, ‘The Domestic Commercial Banks and the City of London, 1870–
1939’, in Y. Cassis (ed.), Finance and Financiers in European History, 1880–1960
(Cambridge, 1992).
See Y. Cassis, City Bankers, 1890–1914 (Cambridge, 1994), pp. 15–18.