Money, finance and capital markets

Abstract

INTRODUCTION: THE BRITISH FINANCIAL SYSTEM IN 1873 Walter Bagehot, editor of The Economist , published Lombard Street in 1873. Bagehot rejected the title ‘Money Market’ because he wanted to convey to readers that he was dealing ‘with concrete realities’ (Bagehot 1873: 1), and reality in 1873 was that the bricks-and-mortar components of the London money market around Lombard Street were banks: the Bank of England, private banks, joint-stock banks and discount houses. In Bagehot’s words, these banks formed ‘the greatest combination of economical power and economical delicacy that the world has ever seen’ (Bagehot 1873: 2). However, the two centuries of financial development that produced Lombard Street also sheltered once-innovative, now-dated arrangements like England’s decentralised regional banking system (Cottrell 1980: 16). In 1873, Britain had 376 private and joint-stock banks, of which ten were Scottish and 296 – 80 per cent – of the remaining 366 banks were English and Welsh banks outside of London (see Table 6.1). Similarly, two-thirds of England’s £393 million of commercial bank deposits were outside of London, and most of Britain’s 481 Trustee Savings Banks were also outside London (Table 6.1; Horne 1947: 379–85). Regional banks were mostly local concerns, and London acted as the hub that integrated the regions into a larger financial system. On an average day in 1873, provincial banks had £9 million on deposit with correspondent banks in London and £5 million in cheques and notes being cleared – mostly using the London Clearing House (Capie and Weber 1985: 280, 475). London was also where banks that needed cash sold bills of exchange.