the world of private banking

PRIVAtE BANKS AND tHE ONSEt OF tHE CORpORAtE EcONOmy 47
However, a comparable increase, largely due to the arrival of new talent, could
also be observed in other major financial centres, especially Paris and Berlin.
What characterized the City of London was the unique position enjoyed by the top
merchant banks. Despite a comparatively modest size, 15 a small group of private
firms continued to keep the upper hand in the most important financial operations
conducted in the world’s leading financial centre, keeping at bay competition
from joint-stock banks, overseas banks and foreign banks. 16 In an increasingly
competitive market, most of the old established houses (N.M. Rothschild, Sons
& Co., Baring Brothers & Co., J.S. Morgan & Co., J.H. Schröder & Co., C.J.
Hambro & Son), all founded before 1840, managed to retain their competitive
advantage. 17 Latecomers were relatively few: Kleinwort, Sons & Co. in the 1850s,
Lazard Brothers & Co. in the 1870s, 18 while steep decline and extinction proved
rare, Stern Brothers being the most notable case. 19
How to account for this success? The main reason is that, however fierce,
competition was nonetheless constrained in international banking. 20 In the
accepting business, there was undoubtedly some restraint on the part of the
clearing banks. The reasons for their relative passivity have to do with the English
banking system’s specialization and a division of labour, at both a business and a
socio-professional level, within the City of London. The inroads made by the jointstock
banks in the accepting business were not considered tolerable by the City
establishment, in other words, the leading merchant banks. ‘Considerable pressure’
was apparently put on the clearers during the early 1900s in order to reduce their
involvement, 21 though their market share continued to grow, to reach 24 per cent
in 1913. The domestic market also benefited from a degree of protection since
foreign banks’ acceptances were not eligible at the Bank of England, whether for
15
In terms of total assets, N.M. Rothschild, Sons & Co., still the City’s largest
merchant bank in 1913 with £25 million, was less than a quarter the size of the top three
clearing banks: London City and Midland Bank, Lloyds Bank, and London County and
Westminster Bank, with respectively 109, 107 and 104 million.
16
See Y. Cassis, ‘London Banks and International Finance, 1890–1914’, in Y. Cassis
and E. Bussière (eds), London and Paris as International Financial Centres in the Twentieth
Century (Oxford, 2005), pp. 107–18.
17
See N. Ferguson, The World’s Banker: the History of the House of Rothschild
(London, 1998); P. Ziegler, The Sixth Great Power: Barings, 1762–1929 (London, 1988);
K. Burk, Morgan Grenfell 1838–1988: the Biography of a Merchant Bank (Oxford, 1989);
R. Roberts, Schroders: Merchants & Bankers (Basingstoke and London, 1992); B. Bramsen
and K. Wain, The Hambros 1779–1979 (London, 1979).
18
J. Wake, Kleinwort Benson: the History of Two Families in Banking (Oxford, 1997);
A. Sabouret, MM Lazard Frères et Cie: une Saga de la fortune (Paris, 1987).
19
P. Emden, Jews of Britain (London, 1944), pp. 542–3.
20
See Cassis, ‘London Banks’, p. 113.
21
According to J.S. Morgan & Co, in December 2006, quoted in Kynaston, City of
London, vol. 2, p. 293.