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 47<br />
However, a comparable increase, largely due to <strong>the</strong> arrival <strong>of</strong> new talent, could<br />
also be observed in o<strong>the</strong>r major financial centres, especially Paris and Berlin.<br />
What characterized <strong>the</strong> City <strong>of</strong> London was <strong>the</strong> unique position enjoyed by <strong>the</strong> top<br />
merchant banks. Despite a comparatively modest size, 15 a small group <strong>of</strong> <strong>private</strong><br />
firms continued to keep <strong>the</strong> upper hand in <strong>the</strong> most important financial operations<br />
conducted in <strong>the</strong> <strong>world</strong>’s leading financial centre, keeping at bay competition<br />
from joint-stock banks, overseas banks and foreign banks. 16 In an increasingly<br />
competitive market, most <strong>of</strong> <strong>the</strong> old established houses (N.M. Rothschild, Sons<br />
& Co., Baring Bro<strong>the</strong>rs & Co., J.S. Morgan & Co., J.H. Schröder & Co., C.J.<br />
Hambro & Son), all founded before 1840, managed to retain <strong>the</strong>ir competitive<br />
advantage. 17 Latecomers were relatively few: Kleinwort, Sons & Co. in <strong>the</strong> 1850s,<br />
Lazard Bro<strong>the</strong>rs & Co. in <strong>the</strong> 1870s, 18 while steep decline and extinction proved<br />
rare, Stern Bro<strong>the</strong>rs being <strong>the</strong> most notable case. 19<br />
How to account for this success? The main reason is that, however fierce,<br />
competition was none<strong>the</strong>less constrained in international <strong>banking</strong>. 20 In <strong>the</strong><br />
accepting business, <strong>the</strong>re was undoubtedly some restraint on <strong>the</strong> part <strong>of</strong> <strong>the</strong><br />
clearing banks. The reasons for <strong>the</strong>ir relative passivity have to do with <strong>the</strong> English<br />
<strong>banking</strong> system’s specialization and a division <strong>of</strong> labour, at both a business and a<br />
socio-pr<strong>of</strong>essional level, within <strong>the</strong> City <strong>of</strong> London. The inroads made by <strong>the</strong> jointstock<br />
banks in <strong>the</strong> accepting business were not considered tolerable by <strong>the</strong> City<br />
establishment, in o<strong>the</strong>r words, <strong>the</strong> leading merchant banks. ‘Considerable pressure’<br />
was apparently put on <strong>the</strong> clearers during <strong>the</strong> early 1900s in order to reduce <strong>the</strong>ir<br />
involvement, 21 though <strong>the</strong>ir market share continued to grow, to reach 24 per cent<br />
in 1913. The domestic market also benefited from a degree <strong>of</strong> protection since<br />
foreign banks’ acceptances were not eligible at <strong>the</strong> Bank <strong>of</strong> England, whe<strong>the</strong>r for<br />
15<br />
In terms <strong>of</strong> total assets, N.M. Rothschild, Sons & Co., still <strong>the</strong> City’s largest<br />
merchant bank in 1913 with £25 million, was less than a quarter <strong>the</strong> size <strong>of</strong> <strong>the</strong> top three<br />
clearing banks: London City and Midland Bank, Lloyds Bank, and London County and<br />
Westminster Bank, with respectively 109, 107 and 104 million.<br />
16<br />
See Y. Cassis, ‘London Banks and International Finance, 1890–1914’, in Y. Cassis<br />
and E. Bussière (eds), London and Paris as International Financial Centres in <strong>the</strong> Twentieth<br />
Century (Oxford, 2005), pp. 107–18.<br />
17<br />
See N. Ferguson, The World’s Banker: <strong>the</strong> History <strong>of</strong> <strong>the</strong> House <strong>of</strong> Rothschild<br />
(London, 1998); P. Ziegler, The Sixth Great Power: Barings, 1762–1929 (London, 1988);<br />
K. Burk, Morgan Grenfell 1838–1988: <strong>the</strong> Biography <strong>of</strong> a Merchant Bank (Oxford, 1989);<br />
R. Roberts, Schroders: Merchants & Bankers (Basingstoke and London, 1992); B. Bramsen<br />
and K. Wain, The Hambros 1779–1979 (London, 1979).<br />
18<br />
J. Wake, Kleinwort Benson: <strong>the</strong> History <strong>of</strong> Two Families in Banking (Oxford, 1997);<br />
A. Sabouret, MM Lazard Frères et Cie: une Saga de la fortune (Paris, 1987).<br />
19<br />
P. Emden, Jews <strong>of</strong> Britain (London, 1944), pp. 542–3.<br />
20<br />
See Cassis, ‘London Banks’, p. 113.<br />
21<br />
According to J.S. Morgan & Co, in December 2006, quoted in Kynaston, City <strong>of</strong><br />
London, vol. 2, p. 293.