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Ian Bond

This chapter develops consistent time series for the British banking population, and entry to and exit from it, from 1790 to 1982. It does not attempt to formulate and apply a rigid functional definition of what constitutes a bank, but instead adopts a pragmatic definition based on what was contemporaneously regarded as a bank. The core concept throughout the period is of a business based on accepting deposits repayable on demand and on making and receiving payments on its customers’ behalf. Specialization during the latter half of the nineteenth century gave rise to two distinct classes of firm – the discount houses and the merchant banks – for whom deposit-taking was a less central function, but who continued to play a crucial role in intermediating funds between the emerging modern commercial banks: these firms too are included in the banking population. The broad patterns exhibited by these data illustrate the repeated episodes of banking problems through the second and third quarters of the nineteenth century, after the reforms which allowed the formation of joint-stock banks in England on the supposedly more stable Scottish model, and the important role then played by mergers in shaping the population. The comparative stability of the British banking system from the end of the First World War until the early 1970s, when competition in retail banking was very limited, is also notable. These patterns suggest that competition and structural change may play important roles in creating the conditions in which bank failures become more likely, and that some of the recent banking reforms may accentuate rather than reduce these risks to stability.