the world of private banking
the world of private banking
the world of private banking
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62<br />
THE WORLD OF PRIVAtE BANKING<br />
fur<strong>the</strong>r ‘Great Fire’ <strong>of</strong> London enabled an institutional restructuring <strong>of</strong> <strong>the</strong> City<br />
during <strong>the</strong> late twentieth century to maintain its long-established, leading position<br />
in <strong>world</strong> finance.<br />
The London markets’ formal origins date from <strong>the</strong> ‘Financial Revolution’ <strong>of</strong><br />
<strong>the</strong> late seventeenth and early eighteenth centuries. A critical period in <strong>the</strong>ir fur<strong>the</strong>r<br />
development was <strong>the</strong> mid-nineteenth century when much <strong>of</strong> <strong>the</strong>ir pre-‘Big Bang’<br />
institutional structures fully emerged. Primarily, <strong>the</strong> shaping <strong>of</strong> <strong>the</strong> mid-Victorian<br />
City was <strong>the</strong> result <strong>of</strong> contextual factors: Britain’s prime position as <strong>the</strong> industrialized<br />
nation and <strong>the</strong> overwhelming role that its economy <strong>the</strong>reby played in <strong>the</strong> developing<br />
<strong>world</strong> economy. None<strong>the</strong>less, domestic decontrol and fur<strong>the</strong>r liberalization had a<br />
significant bearing. The general company code was radically reformed in 1855 and<br />
1856 to allow limited liability companies to be readily established. Promoters <strong>of</strong><br />
corporate, non-<strong>banking</strong> financial intermediaries responded almost immediately to<br />
this new freedom and, likewise, founders <strong>of</strong> joint-stock banks when such institutions<br />
were brought under <strong>the</strong> new permissive company law through specific legislation<br />
passed between 1857 and 1862. Corporate discount houses, limited joint-stock<br />
banks, both domestic and overseas, and finance companies <strong>the</strong>n rapidly rose to<br />
dominate most <strong>of</strong> <strong>the</strong> City’s financial markets.<br />
Yet <strong>the</strong>re were areas <strong>of</strong> successful resistance, and personal enterprise continued<br />
to be <strong>the</strong> force on <strong>the</strong> Stock Exchange’s floor, within metropolitan <strong>private</strong> <strong>banking</strong><br />
and amongst <strong>the</strong> City’s merchant banks. Although <strong>the</strong> ‘square mile’s’ <strong>private</strong> banks<br />
were to wane from <strong>the</strong> 1890s, <strong>the</strong> merchant banks withstood <strong>the</strong> new corporate<br />
finance companies’ short-lived challenge during <strong>the</strong> mid-1860s, <strong>the</strong>reafter largely<br />
holding <strong>the</strong>ir ground until <strong>the</strong> ‘Big Bang’ <strong>of</strong> <strong>the</strong> late twentieth century. The City’s<br />
mid-nineteenth century organizational transformation was <strong>the</strong>refore incomplete in<br />
terms <strong>of</strong> joint-stock institutions’ rapidly achieving total supremacy.<br />
The organizational restructuring <strong>of</strong> London financial institutions over <strong>the</strong> midcentury<br />
is <strong>the</strong> more remarkable since <strong>the</strong> period was financially tempestuous. Major<br />
crises erupted in 1857 and 1866, and <strong>the</strong> City was also affected to some degree<br />
by <strong>the</strong> American and Central European financial collapses <strong>of</strong> 1873. Fur<strong>the</strong>rmore,<br />
English <strong>banking</strong> was shaken by <strong>the</strong> City <strong>of</strong> Glasgow Bank’s failure in 1878. As<br />
well as <strong>the</strong> shocks <strong>of</strong> <strong>the</strong>se major events, <strong>the</strong> mid-century was punctuated by<br />
a series <strong>of</strong> minor upheavals <strong>of</strong> some consequence, such as <strong>the</strong> 1860/1 ‘lea<strong>the</strong>r<br />
crisis’. All strained <strong>the</strong> liquidity <strong>of</strong> <strong>the</strong> English financial sector to varying degrees<br />
and consumed financial capital, something that may have borne hardest upon<br />
practitioners <strong>of</strong> personal as opposed to corporate financial enterprise.<br />
I<br />
The financial and monetary context for <strong>the</strong> City’s mid-nineteenth century<br />
organizational transformation can be illustrated. Figure 4.1 portrays <strong>the</strong> volume<br />
<strong>of</strong> bills <strong>of</strong> exchange, which reached a historic maximum during <strong>the</strong> early 1870s’<br />
cyclical upswing, although with foreign bills declining less markedly <strong>the</strong>reafter