Learning from Victorian banking

Banks must build honest relationships with clients, as in the Britain of yore

The British are 8212; or were 8212; particularly good at banking. British banking financed the Empire and the Industrial Revolution. These achievements owed a great deal to the stability of the gold standard, which lasted from Isaac Newton8217;s recoinage of gold in 1717 until Ramsay MacDonald8217;s abandonment of it in 1931. More than two centuries of exchange-rate stability gave the British banking system a stability of its own and a high standard of trust. I can remember, when I first opened a bank account in the 8216;40s, the stable atmosphere of British banking. My father started the account for me8230; I met the bank manager, an avuncular figure, whom I was encouraged to treat as a trusted adviser. This was relationship banking, and it still survives in the far corners of the British banking world. It was the right way to do business.

The bank manager then occupied a similar position to the family solicitor or the family doctor. He hoped to maintain a long-term relationship with each client and he hoped that this relationship would survive for generations. He would offer general financial advice, and was concerned to keep the interest of the client and the bank in alignment. He did not lend the bank8217;s money to people he thought might be unable to repay it. That would plainly be against the interests of the client as well as of the bank. He would, however, try to find a way of meeting the needs of vulnerable groups, including students8230; widows and businesses under trading pressures. The customer who failed was seen as a failure for the bank, because it would be regarded as a lack of banking competence. The customer who built up a successful business would also be a good advertisement for the bank.

Banks were there to help their clients and to keep them out of trouble8230; After the Second World War, relationship banking went into decline. The banks were attracted by the impersonal profits to be made in transactional banking.

From a comment by William Rees-Mogg in 8216;The Times8217;, London