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