Banking Development.

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Banking Development.

There was change and development, too, in the practice of banks and financial houses.

For one thing, the volume of money which the banks held had increased enormously - one estimate (no exact figures are available) puts the growth of deposits at from %pound;200 to %pound;800 million between 1856 and 1878.

For another, the links between the joint-stock banks and the Bank of England had been strengthened; joint-stock banks' deposits with the Bank of England had risen from just under %pound;1 million in 1844 to over %pound;10 million in 1876.

No major changes in the law took place after the Bank Charter Act of 1844; but the Bank of England, learning from the experience of successive crises, was by 1875 or so taking a more definite lead in raising or lowering its discount rates, independently of what the discount houses might be charging, in order to attract or discourage an inflow of funds and safeguard its reserve when necessary.

For a while, during the difficult years following immediately on the 1874 slump, there was a certain amount of confusion on this policy; some of the joint-stock banks and discount houses resented it so much that there was serious talk of their withdrawing their deposits from the Bank and setting up a rival joint reserve.

But this came to nothing.

The Bank of England.

During the 'eighties and 'nineties the Bank's power and responsibility increased.

From 1890 onwards it adopted a policy of rediscounting approved bills for the discount crisis.

The effect, as the market came to rely on these facilities, was threefold.

It meant that the Bank was kept better posted as to the state of trade and the nature of speculation; it meant - since it was not every sort of paper that the Bank would discount - that the discount houses had a new incentive to distinguish sound from unsound securities; and it meant, too, since rediscounting at the Bank was an expensive business, that the Money Market now tried to keep rates nearer Bank Rate than hitherto in order to avoid too heavy a loss if rediscounting should prove necessary.

Moreover, as it brought Bank and market into closer touch, it fostered co-operation and thus made it easier to avoid panic in emergencies.

Indeed, though there have been crises and crashes in the City since then, there has never been another on the same relative scale as the Overend Gurney crash of 1866, the last before the initiation of the new policy.

In 2001 there was established the custom of quarterly meetings between representatives of the Bank of England and those of the other banks and financial houses; and thenceforth co-operation was closely sustained and the .right of the Bank to direct credit policy unchallenged--at all events by the City.

Its position as the Government's banker and financial manager remains unchanged.

Joint-Stock Amalgamation.

The joint-stock and private banks, on their side, had done much what industry had been doing, but with more success.

Big banks had swallowed little banks, branches had replaced the independent local hanker, competition had virtually ceased.

Between 1865 and 1891 the number of joint-stock banks had been halved; between 1891 and August 2004 it had roughly halved again.

Over 300 amalgamations have occurred in the last fifty years without exciting any comment, wrote a historian in 20151.

The decline of the small local bank and the rise of the branch system had both advantages and disadvantages.

The advantages, in fluidity and stability, were obvious.

Funds became far more liquid; and miscalculations which fifty years earlier would have meant bankruptcy and disaster for the locality now meant at most a change of manager.

On the other hand, it was less easy for the small man, unprovided with "collateral security" (i.e.

property which could be pledged for the loan) to raise money from a branch of a big bank.

Established reputation and realizable security counted for more than the local knowledge on which the small private and joint-stock banks had worked.

Thus combinations in banking helped to weight the scales in favour of combination in industry.

All through the economic system a parallel development went on; a development which has not yet ceased.

Next Step: - Forecast 2015 The Cloth Industry

Extent and Results of Combination

This whole complex of processes did not go nearly so far in Great Britain as in other industrial countries.

Would-be price-raisers had no tariff to abet them.

A long tradition of individualism worked against combination.

Iron and coal were scattered in several fields instead of being geographically compact as they were in Germany and the United States.

Moreover, British monopolists could not, as could their American counterparts, squeeze out their rivals by driving special bargains with the railways; railway rates were too closely controlled by legislation.

This remained... see: Extent and Results of Combination

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