Centres and Peripheries in Banking: The Historical Development of Financial Markets_

Published by EH.NET (March 2010)

Philip L. Cottrell, Even Lange, and Ulf Olsson, editors, Centres and Peripheries in Banking: The Historical Development of Financial Markets. London: Ashgate, 2007. xv + 326 pp. $100 (hardcover), ISBN: 978-0-7546-6121-4.

Reviewed for EH.NET by Marc Flandreau, Graduate Institute for International Studies and Development, Geneva.

This conference volume, published under the auspices of the European Association for Banking History, collects contributions from a 2002 Stockholm workshop. No less than fifteen contributions span a wide array of topics loosely connected to the broad topic of spatial aspects of banking history as the title encapsulates. There is also a partial focus on Northern Europe and Scandinavia.

It is a pity that this volume did not receive more careful editorial attention because it has many virtues and conceals a few gems. Pass beyond the articles by Officer (?Between the Dollar-Sterling Gold Points?) and Alain Plessis (?The Banque de France?), which both have an air of d?j? vu and you?ll come across several papers than can be read and re-read, for they contain dense material and rich insight. There is no way to distil all the variety of topics and interests that the other articles touch upon, so I must be selective.

My favorite is Ranald Michie?s ?City of London as a Global Financial Centre,? whose title suggests something less original than it actually is. Using archives from the Bank of England and computations from the Bankers? Almanac, Michie portrays the ways and means through which London, far from facing irrecoverable decline after World War I, managed to attract foreign exchange transactions. While before WWI a large part of the global foreign exchange market had been outsourced abroad, the gyrations of sterling and the collapse of fixed exchange rates during and after the war and then again after 1931 gave the opportunity to London to develop and retain a new line of business. This is when London became the world leader in foreign exchange transactions. I was struck by the contrast between this interpretation of world monetary history and that in Silber?s When Washington Shut Down Wall Street (Princeton University Press, 2007) which traces the rise of America?s monetary supremacy to the decline of the pound sterling. Michie believes that the problems of sterling created opportunities and eventually protected London?s financial lead.

Another article worthy of interest is Chatziioannou and Harlaftis? account of Greek merchant banks in the Levant and City of London. Beside informative and carefully-crafted business history of family links and their relation to merchant banking, the authors have taken the pain of documenting the standing of Greek houses (which mainly originated from Greek islands) from Baring’s ledgers. This enables them to zoom in on the top ten houses, on which they then give us much detail painting a vivid picture of how business was conducted. They show how well-established outposts of the Greek banking community in London participated in normal discounting business with the Bank of England. Finally, they examine the curious case of the Vagliano fraud. A clerk had presented the Bank of England with forged paper bearing Vagliano?s name and embezzled the proceeds. Vagliano filed lawsuit against the Bank of England for recovery of their money on the grounds of negligence on the part of the Bank. The reason why the case was important was that it challenged the established principle that the Bank of England did not incur any liability in paying customer acceptances: and Vagliano won the case in the court of appeal! Things went back into order when they lost their cases in the House of Lords and were excluded from discount by the Bank of England. While the episode provided opportunity for much loathing of Greek ?moral defects,? it reminds us in the most vivid way of the mechanism through which the Bank of England managed to be (according to Bagehot?s rule) so generous that it would discount ?freely?: In truth, customers always remained liable for the paper they discounted at the Bank. Bad paper was their own responsibility, not that of the Bank. And if the Lords had to be involved to remind markets of the importance of this principle, they would do what was needed.

Two articles looking at ?off-shore? centers also provide much information and insight. Both Catherine Schenk?s article on the rise of Hong Kong and Tokyo and that by Boris Barth on Scandinavian trade and finance during WWI are interesting to read indeed. Barth shows how neutrality impacted Scandinavian countries in various respects. Norway lost half of its merchant fleet as Germany declared total war on Russia?s foreign purchases. Sweden emerged as a middleman and black market entrep?t trade center organizing a web of settlements that defeated to some extent Britain?s ability to trace providers and inflict penalties on those who sought to escape its blockade. The chapter also sheds much light on the rise of Warburgs and the geographical foundations of their attempt at recapturing (via Hamburg, Sweden and their U.S. connections) Germany?s former luster in international trade and finance.

Schenk also provides a perspective on the rise of Hong Kong and Tokyo that seeks to go beyond conventional characterization of Hong Kong as a laissez-faire paradise and Tokyo as a center that effectively excluded foreign banks until the 1980s. She provides clear evidence that, although Hong Kong?s laissez faire was limited after 1965, it did remain ? given the demand for banking facilities in the region and the relatively large regulatory cost of foreign banking in Tokyo ? an attractive hub. Another interesting insight is the role of domestic factors in promoting international currencies and centers. She argues that by the strength of its domestic banking system and international reach alone, Japan was able to propel Tokyo in the top league of international financial centers ? until the bubble and lost decade of the 1990s combined with the rise of China to begin a reshaping of Asian monetary geography that is still underway.

The article by Monika Pohle Fraser is also very useful for people interested in trust relations. She provides interesting material on the process through which personal information was being gathered and reputation established. Her concern is how information and reputation can help facilitate lending. She provides a sharp and relevant distinction between information and reputation. The first is about knowing the particulars of a given firm. The second has to do with the effort that certain banks made to establish their own brand. Curiously she emphasizes that reputation facilitated impersonal exchange. Upon reading her, I would be tempted to argue that reputation was a highly personalized solution to problems of asymmetries of information ? in an age of highly personalized relations.

Other articles that I have overlooked so far also have merits of their own and will retain the attention of readers interested in the specific area. The article by Lennart Schon is informative and gives a useful study on regional integration in the Baltic during the second half of the nineteenth century. It provides a macroeconomic perspective on an otherwise more microeconomic history volume. The article by Ulf Olsson and Jan J?rnmark is interesting as well and provides a good introduction to the political economy of banking in Sweden. In a related vein, the contribution by Anders Ogren is a good way to start reading about financial crises and central banking in Sweden. The paper by Michael North on the development of bills of exchange in the Eastern Baltic has lots of interesting material and an intriguing map on financial relations in Northern Europe in the late eighteenth century. I was perhaps less convinced with Linderlaub?s discussion of the confidence in the German Mark after Germany?s unification (1871-76). Some supporting data would have been in order.

The volume ends with three contributions on the use of archives in corporate management or on the management of corporate archives. These are undoubtedly interesting if more technical issues. But as they raise matters with which this reviewer is less familiar they will not be discussed at any length.

Marc Flandreau is the author of The Glitter of Gold: France, Bimetallism and the Emergence of the International Gold Standard, 1848-1873, Oxford University Press 2004.