Following in Scottish footsteps: the amalgamation movement in English and Welsh banking, 1870-1920

Abstract

The Amalgamation Movement was an outbreak of bank mergers and acquisitions in England and Wales that began around 1870, lasted for half a century and transformed the English and Welsh banking industry into a concentrated oligopoly dominated by five banks. This Amalgamation Movement was a response to the economic growth unleashed by the Industrial Revolution. For the first time ever, a human population was experiencing a sustained increase in its per-capita incomes. Economic growth like this made the British one of the wealthiest people on earth but it also gave rise to a monetary problem. An expanding post-Industrial Revolution British economy required a growing money supply to finance the increase in the value of the transactions undertaken. However, the supply of precious metals available to fashion into gold and silver coins was finite. Post-Industrial Revolution Britain had to erect its money supply on a foundation of credit and the obligation to furnish much of that credit ultimately fell upon the domestic banks. The solvency of the banking system became a vital economic consideration under these circumstances. The Amalgamation Movement secured monetary stability by putting the banking industry in England and Wales under the control of five well-resourced and effective bureaucracies. Large banks subject to good administration maintained public confidence in a money supply composed of a growing proportion of bank deposits. Bank amalgamations also compensated for the loss of the inland bill of exchange, a financial security that was the English and Welsh banking industry’s favourite reserve asset prior to 1870. Finally, the Amalgamation Movement accommodated the banking industry’s conversion to a regime of limited liability during the 1880s. Britain acquired one of the safest banking systems in the world because of the Amalgamation Movement. The run of monetary good fortune continued until a global financial crisis in 2007/08 exposed the dangers inherent in Britain’s overreliance on large banking institutions deemed to big to fail.