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British and Italian Banks and Small Firms: a Study of the Midlands and Piedmont 1945-1973

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British and Italian Banks and Small Firms: a Study of the Midlands and Piedmont 1945-1973 British and Italian banks and small firms: a study of the Midlands and Piedmont 1945-1973. Francesca Camevali (London School of Economics and Political Science) Thesis submitted for the degree of PhD - University of London 1997 1 UMI Number: U615418 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U615418 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Acknowledgments This thesis could not have been written without the help of academics, archivists and friends. I am particularly grateful to the following archivists for their assistance in locating vital data and documents: Jessie Campbell at Barclays, John Booker at Lloyds, Edwin Green at Midland and Henry Gillet at the Bank of England. Renato Maino at the Istituto Bancario San Paolo gave me precious insights into the workings of the Piedmontese banking network while Gabriella Monzeglio at the Cassa di Risparmio di Torino allowed me access to people and documents. I would also like to thank Orietta Vito-Colonna at the Banca d’ltalia for her willingness to discuss this project. As my research was progressing (or not) several economic historians have given me advice, asked fundamental questions and commented on drafts of parts of this thesis. I am grateful to Nick Crafts, Ann Fuller, Peter Howlett, Paul Johnson, Mary Morgan, Duncan Ross, Catherine Schenk and Adam Tooze for their help and patience. I would particularly like to thank Forrest Capie for giving me the opportunity to present my work in Britain and abroad in the early stages of this research. Special thanks are also due to Giulio Sapelli for many years of constructive criticism. My debt of gratitude towards my supervisor, Leslie Hannah, is great. Over these years he has endured my ignorance and stubbornness with amazing good humour and has given me support and the benefit of his knowledge well beyond the call of duty. Finally I gratefully acknowledge financial assistance from the Fondazione Einaudi and the ESRC. 2 Abstract The central contention of this thesis is that, in the post 1945 period, the British banking system limited the availability of finance to small firms. The concentrated and centralised nature of British banking induced financial repression as banks rationed credit to small firms, not purely in terms of interest rates, but also, and indeed mainly, in terms of supply. In a situation where banks enjoyed monopoly power over small and new firms, banks were unwilling to enter transactions with them as the cost of these transactions was high in relation to the returns, due to the centralised organisational structure of the banks. In the period previous to the one studied here, concentration had eliminated provincial banks, and the cartelized nature of British banking prevented the emergence of other local banks in the post-1945 period. These local banks would have had structures more suited to the reduction of information asymmetries, and therefore an interest in lending to small firms. The existence of a credit gap was exacerbated by credit restrictions devised by the British government in the post war period to control inflation and the balance of payments. These caused British banks to reduce the finance available to small firms. The argument presented here is that small firms in Britain suffered from credit restrictions more than they would have done if the banking system had been segmented, with other provincial banks available closer to local markets. The importance of local banks for the survival and development of small firms is illustrated by a comparison with the more differentiated Italian banking structure, in particular, the activity of two Piedmontese banks. In the chapters dedicated to Italian local banks, particular emphasis is given to their involvement with the regional economy and to the networks within the region that facilitate the exchange of both formal and informal information between small firms and banks, thus reducing information asymmetries and facilitating transactions. 4 Contents Page List of Tables 8 List of Figures 10 Introduction 11 Chapter One: Small firms, networks and finance 14 1. Small firms 14 1.1 Why small firms matter 18 1.1.1 Small firms and innovation 20 1.1.2 Small firms and the generation of jobs 24 2. The decline of small firms in Britain 28 2.1 Small firms in the Midlands and Piedmont 31 3. Small firms and the supply of finance 33 3.1 What a small firm needs finance for 34 3.2 Small firms and the ’Macmillan Gap’ 35 4. Small firms and networks 38 4.1 From Industrial Districts to network theory 42 4.2 Small firms, the local economy and information 47 4.3 Small firms, information and transactions 50 5. Networks and banks 56 5.1 Assessing 59 5.2 Monitoring and enforcing 61 Conclusion 62 Chapter Two: The British banking system 65 1. Concentration in British banking 65 2. A quiet life - the best of monopoly profits? 73 3. Other sources of finance 77 Conclusion 92 Chapter Three: The structure of the banks 94 1. The Midlands 94 2. The structure of the banks 97 2.1 The Midland Bank 98 2.2 Lloyds Bank 104 2.3 Barclays Bank 111 Conclusion 116 Appendix to Chapter Three: Bankers’ careers 118 5 Chapter Four: The post-war credit restrictions and small firms 120 1. Patterns of lending and the credit controls 120 2. Bank lending with brakes on 128 3. The credit restrictions, small firms and more qualitative evidence 146 Conclusion 153 Appendix to Chapter Four: Tables 155 Chapter Five: The Midland Bank and discrimination against small firms 159 1. Lending by a British bank 160 Conclusion 172 Appendix to Chapter Five: Tables 173 Chapter Six: The Italian banking system 182 1. The Italian banking system 182 1.1 The Bank Law of 1936 183 1.2 Ownership and control 188 1.3 Banking specialisation 195 2. A bank oriented system? 199 2.1 The Istituti di credito speciale - ICS 200 3. Italian banking: An inefficient system? 211 3.1 Competition 212 3.2 Economies of scale and profitability 213 3.3 Interest rates - Britain and Italy compared 215 4. Analysis of bank lending 219 Conclusion 221 Appendix to Chapter Six: Tables 223 Chapter Seven: Monetary controls in Italy between 1947 and 1973 231 1. Rapid growth. 1945-1960 231 2. Slowdown. 1961-1973 238 Conclusion 247 Appendix to Chapter Seven: Tables 249 Chapter Eight: Banking in an Italian region 251 1. The Piedmontese banking system 252 2. Two Piedmontese banks 254 2.1 The Cassa di Risparmio di Torino 255 6 2.2 The Istituto Bancario San Paolo 264 3. A local bank within the local network 270 Conclusion 275 Appendix to Chapter Eight: Tables 277 Conclusion 280 Bibliography 289 7 Tables Page 1.1 Employment share of manufacturing establishments employing 15 less than 100 people.France, Germany, Italy, Japan, United Kingdom, c. 1951-1981 1.2 Number of innovations by size of innovating unit and by 21 size of firm. United Kingdom. 1945-1980 1.3 Percentages of net new jobs generated by size of firm. 25 United States. 1969-1976 1.4 Share of employment and net output by enterprise size. 30 United Kingdom. 1930-1983 1.5 Share of employment by enterprise size. Italy. 1951-1981 31 1.6 Number of plants by size. Birmingham employment area. 32 1949-1969 1.7 Number of Enterprises by size. Piedmont. 1951-1971 32 2.1 Analysis of instalment debt by commodity groups. 1957-1959 84 2.2 ICFC. Midland region, Number of investments. 1954-1961 91 4.1 Advances. Barclays, Midland, Lloyds and London Clearing Banks. 131 1946-1963 4.2 Advances. Barclays Bank and Birmingham Local Board. 1951-1962 134 A4.1 Classification of advances. BBA. 1946-1966. Percent of total 156 A4.2 Classification of advances. BBA. 1967-1972. Percent of total 157 A4.3 Classification of advances. BBA. 1946-1966. Millions of pounds. 158 5.1 Midland Bank. Number of advances renewed and new applications 163 accepted by size of loan. 1954-1958 5.2 Midland Bank. Structure of lending in the £1-£5,000 category. 165 1954-1958 A5.1 Midland Bank. Classification of Advances. 1951-1968 174 A5.2 Midland Bank. Percentage change in advances. 1951-1961 177 A5.3 Midland Bank. Average size of loans. 1951-1961 178 A5.4 Midland Bank. Percentage change in advances. 1951-1957 179 A5.5 Midland Bank and Midlands Division. 180 Classification of Personal Loans. 1958 and 1960 A5.6 Barclays Bank Birmingham Local Board. Classification of Advances. 181 1948, 1968 and 1972 6.1 Number of Italian banks by juridical type 184 6.2 Italy. Bank lending to manufacturing. 1960 198 6.3 Italian banks. State securities as a percent of total assets 198 6.4 Interest rates (minimum and maximum) charged 217 by Italian banks and by Barclays Bank. 1950-1962 6.5 Interest rates charged by Special Institutes, market rate 218 and subsidised rate. 1960-1962 A6.1 Italy. Wholesale and retail price index. 1947-1962 224 A6.2 Retail price index. 1953-1970. USA, Germany, France, Italy, 224 United Kingdom, Netherlands, Belgium 8 A6.3 Italy.
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