London Clearing Banking 1946-79: stability and compliance and its regulatory, competition and institutional underpinnings

The period from 1946 until the early 1970s was a period of stability in banking in the UK and one in which there was a high degree ofcompliance with regulation. It stands in contrast to the period since the 1970s, which has been more prone to banking crises, most notably the global financial crisis of 2007-9. This research seeks better to understand and account for stability and compliance in banking by describing, exploring and explaining the regulatory, competition and institutional frameworks within which clearing banking operated in the period 1946-79. Initially, the thesis explores the regulatory framework for banks by setting out a detailed and systematic analysis ofthe forms and techniques of bank regulation. An analysis of this type does not exist in the literature. The thesis then evaluates the degree of concentration and competition in clearing banking. It questions aspects of the dominant view in the literature which sees stability as a consequence of a concentrated clearing banking system in which there was very limited competition. The third framework supporting stability and compliance in the banking system was the institutional framework. The institutional framework can be viewed as a set of constraints which had a normative dimension. It explores these constraints and demonstrates how they worked as counterweights to excessive risk-taking by banks. By the 1970s, the banking system was becoming less stable as these frameworks disintegrated or were dismantled, and in December 1973 a crisis of the secondary banks broke. Finally, drawing on a historical understanding of bank regulation in the period 1946-79 and a comparison with contemporary bank regulation, some guiding principles are suggested for regulatory policymakers and practitioners today. The methodology of the research is historical, based upon the analysis and evaluation of a broad range of published and unpublished records