Skip to main content

The Rise of Big British Banks

The Labour leader, Ed Miliband, has come out today and attacked Britain's banks for being too big (story here). He argues that too much power has been concentrated in the hands of a few banks and, as a result, these big banks have been poor servants of the real economy for decades. Miliband wants to place a cap on the market share that any one bank can enjoy.

British banking hasn't always been dominated by big banks. In 1900, banking in the UK was competitive, with the top five banks having less than 25 per cent of the deposit market.  By 1921, however, the top five banks had close to 80 per cent of the deposit market. What happened? Between 1900 and 1921, there was a series of mergers which resulted in banking behemoths. Fabio Braggion, Lyndon Moore and Narly Dwarkasing have a nice paper which looks at this merger movement - click here.

The big question, however, is have big British banks failed the real economy for the past century? I feel a new book coming on!!

Popular posts from this blog

How Valuable Are Connections?

Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...
Read more

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press . 
Read more

Bank Runs in Greece

Deposit withdrawals in Greece have been substantial over the past two years.  However, the failure of Greece's politicians to form a coalition government has resulted in deposit withdrawals accelerating - click here and here for more on this.  Depositors are rightly concerned about the exit of Greece from the euro and the subsequent devaluation of their deposits.  The puzzle for me and many others is why are there so many deposits still remaining in the Greek banking system.  One reason is that the Greek banking system is being kept alive by massive injections of money from the ECB.  Will the ECB continue to support the Greek banking system in the face of a mass withdrawal of deposits?  I doubt that there is the political will in Germany for this as the Bundesbank already has a huge exposure to Greece (as well as Spain and Italy) through the ECB's internal Target 2 system.
Read more