Critical Perspectives on the Evolution of American and British Banking
Edited by Matthew Hollow, Folarin Akinbami and Ranald Michie
Chapter 3: Nature or nurture: the British financial system since 1688
In the wake of the financial crisis of 2007–08, a complete reform of the British banking system has been put in motion. This involves not only the role played by the central bank and the regulatory agencies but also the structure of banking. Financial stability is now to be prioritized while the banking system is also to be made more competitive so as to better serve the needs of the UK economy. Driving much of this agenda are examples drawn from the USA, even though the development and structure of banking in that country are fundamentally different from those of the UK. Forgotten are the lessons to be learnt from Britain’s much longer banking history, spanning over 300 years. Over that time period, Britain experienced many financial crises and, in response, solutions were devised that made the banking system both stable and competitive. This position had been achieved by the late nineteenth century, largely through natural evolution rather than government intervention. The results were then sufficient to allow the banking system to withstand the stresses caused by two world wars and a global financial crisis in the twentieth century. Studying Britain's own financial history, especially in comparison to that of the USA, provides a rich seam of evidence on what has worked for banking in the past compared to that which has not.
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