the world of private banking

62
THE WORLD OF PRIVAtE BANKING
further ‘Great Fire’ of London enabled an institutional restructuring of the City
during the late twentieth century to maintain its long-established, leading position
in world finance.
The London markets’ formal origins date from the ‘Financial Revolution’ of
the late seventeenth and early eighteenth centuries. A critical period in their further
development was the mid-nineteenth century when much of their pre-‘Big Bang’
institutional structures fully emerged. Primarily, the shaping of the mid-Victorian
City was the result of contextual factors: Britain’s prime position as the industrialized
nation and the overwhelming role that its economy thereby played in the developing
world economy. Nonetheless, domestic decontrol and further liberalization had a
significant bearing. The general company code was radically reformed in 1855 and
1856 to allow limited liability companies to be readily established. Promoters of
corporate, non-banking financial intermediaries responded almost immediately to
this new freedom and, likewise, founders of joint-stock banks when such institutions
were brought under the new permissive company law through specific legislation
passed between 1857 and 1862. Corporate discount houses, limited joint-stock
banks, both domestic and overseas, and finance companies then rapidly rose to
dominate most of the City’s financial markets.
Yet there were areas of successful resistance, and personal enterprise continued
to be the force on the Stock Exchange’s floor, within metropolitan private banking
and amongst the City’s merchant banks. Although the ‘square mile’s’ private banks
were to wane from the 1890s, the merchant banks withstood the new corporate
finance companies’ short-lived challenge during the mid-1860s, thereafter largely
holding their ground until the ‘Big Bang’ of the late twentieth century. The City’s
mid-nineteenth century organizational transformation was therefore incomplete in
terms of joint-stock institutions’ rapidly achieving total supremacy.
The organizational restructuring of London financial institutions over the midcentury
is the more remarkable since the period was financially tempestuous. Major
crises erupted in 1857 and 1866, and the City was also affected to some degree
by the American and Central European financial collapses of 1873. Furthermore,
English banking was shaken by the City of Glasgow Bank’s failure in 1878. As
well as the shocks of these major events, the mid-century was punctuated by
a series of minor upheavals of some consequence, such as the 1860/1 ‘leather
crisis’. All strained the liquidity of the English financial sector to varying degrees
and consumed financial capital, something that may have borne hardest upon
practitioners of personal as opposed to corporate financial enterprise.
I
The financial and monetary context for the City’s mid-nineteenth century
organizational transformation can be illustrated. Figure 4.1 portrays the volume
of bills of exchange, which reached a historic maximum during the early 1870s’
cyclical upswing, although with foreign bills declining less markedly thereafter