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Über dieses Buch

This book offers 14 contributions that examine key questions concerning bankers´ decision making, their confidence in partners and customers, and their risk management practices from Early Modernity to the 20th century. It explores various mechanisms of banks' decision taking, how they were established and how they changed over time. Specific chapters also analyze the types of risk management techniques used and the extent of their success; factors that contributed to the constitution of confidence and factors that damaged it; and methods that banking historians can use to analyze and describe bankers´ risk management and decision making. The volume features varied methodological approaches for historical research (from system theory to behavioural finance, from new institutional economics to praxeology, from convention theory to network analysis). The different methodological approaches are put to the test in case studies based on archive material from five hundred years of banking (from Early Modern European banking networks to international computerization) in order to connect banking history more closely to political and cultural history.

Inhaltsverzeichnis

Frontmatter

Introduction

The decision-taking and risk management of bankers, as well as confidence as the basis of the banking business, became highly relevant social topics during the last financial crisis of 2008 onwards. Their significance for understanding banking practices has a long history. This introduction offers definitions of particular terms and explains their relevance for historical research. It also gives an overview of the methodological approaches presented in this volume, from system theory to behavioural finance, from new institutional economics to praxeology, from convention theory to network analysis. Each chapter also offers a case study where the methodological approach is put to the test in empirical historical research. The introduction urges the intensive application of cultural historical methods to banking history.
Korinna Schönhärl

First Part: Recruitment of Personnel and Partners

Frontmatter

The House of Morgan: Private Family Bank in Transition

This paper is a study of the social origins of the House of Morgan between 1895 and 1940. It argues that the history of the Morgan partnership can contribute to our understanding of how the mechanisms of confidence and risk management work in tandem. The Morgan partners managed the risk of incorporating non-family members by creating continuity through common associations with other institutions in the society at large. These relationships integrated the Morgan firm in an institutional network that created confidence through mechanisms similar to kinship but whose longevity was not limited by the life span of individual partners or specific kinship lines.
Susie J. Pak

Top Careers as a Means of Risk Management in Organisations

Decision-making reproduces organisations and produces risks, and risks inevitably have to be managed. The most far-reaching and risky decisions are the responsibility of an organisation’s higher hierarchical levels. Starting from this premise based on Niklas Luhmann’s Systems Theory, the chapter presents a model that focuses on the function of top careers in organisations and provides a means by which decision-making and risk management can be examined. A top career is both a process of selection and a process of socialisation. During its course, individuals are selected who have proved their ability to make decisions and to handle risks. Therefore, a top career is a mechanism that serves organisational interests by reducing the risks related to decisions, thus increasing the probability of reproducing the organisation.
Daniel Wylegala

Cooperative Governance in Banking: Consequences for Decision-Making Processes

According to modern economic theory, the decisions of economic players always relate to the future and therefore necessarily take place under conditions of uncertainty that can only be reduced through the formation of expectations. Building on this assumption, the author argues for the development of a model for experience-based expectation formation. Using the decisions of German universal banks in favour of a strategy of club banking for their investments abroad during the late 1960s and 1970s as a case study, the paper identifies the most relevant questions that should be addressed by further empirical research in order to construct such a historically sound model for experience-based expectation formation and decision-making processes with regard to multilateral cooperative governance in banking.
Friederike Sattler

Second Part: Risk Management Techniques

Frontmatter

Minimising Risk: Financial Intermediaries and Bond Issuing in London before the Great War

In the 1880s, increased competition forced issuing houses to incur a greater degree of underwriting and reputational risk and weakened their ability to act as effective market gatekeepers. This chapter analyses how issuing houses responded to these challenges, the methods adopted and the factors that furthered and retarded their ability to respond effectively. Market conservatism initially impeded an effective response until the Baring Crisis exposed the potential dangers of the new situation. This crisis prompted financial intermediaries to overcome market concerns and resulted in the development of standing international issuing syndicates and underwriting groups. The former enabled issuing houses to regain their position as effective gatekeepers, while underwriting groups effectively subcontracted underwriting risk to other parties and transformed the way underwriting risk was judged.
Anders L. Mikkelsen

Financial Centres as Fields: Reflections on Habitus and Risk in the Nineteenth and Twentieth Centuries

This article develops a new understanding of the financial centre as a unit of analysis. It draws on Pierre Bourdieu’s generative structuralism to argue that financial centres constitute fields that possess a distinctive habitus through which risk is judged. Furthermore, Douglass North’s New Institutional Economics is used to argue that this distinctive habitus is the product of a combination of ‘hard’ and ‘soft’ forces: economic and business structures, the role of states, social networks, and cultural factors. It pushes beyond a simple geographical understanding of the financial centre while asserting that the financial centre is indeed a critical level of analysis. Moreover, the approach taken strongly suggests the need for historians of finance to incorporate broader macro-level political, economic, social and cultural developments into their analyses.
Andrew Dilley

The “Reputation Approach” and the Justificatory Function of Economic Calculation. Some Critical Reflections on Monika Pohle Fraser’s Analysis of Risk Management Techniques in the Nineteenth Century

In this article, Sebastian Knake gives an interpretation of formal risk calculations as a source of justification for industrial investment decisions in the case of fundamental uncertainty. Monika Pohle Fraser’s historical analysis of the risk management practices of German and French banks in the nineteenth century provides a basis. Knake first presents the central results of Pohle Fraser’s unpublished dissertation and discusses the theoretical implications of her conclusions. Knake then compares her approach with the theoretical assumptions of the justification theory included in the ‘Économie des Conventions’. He proposes the analysis of justification discourses as a way to better understand the processes that lead to investment decisions. Finally, Knake tests his proposal on a short example from his own empirical work on the Braunschweigische Staatsbank in the 1950s.
Sebastian Knake

Investigating Attitudes to Risk in British Banking: A Case Study of Barclays’ Branch Banking System, c. 1900–80

Risk-taking is both a central and an inescapable aspect of modern-day commercial banking. However, up until now, the story of how banks coped with and managed risk in the past has remained largely untold. This paper goes some way to redressing this notable blind spot in the historical literature by providing a detailed investigation of how one major British commercial bank—Barclays Bank—went about the inherently risky process of providing loans to small and local businesses in the period between 1900 and 1980. Ultimately, what it shows is that, despite the many advances made in accounting and bookkeeping during this period, interpersonal relationships and local connections continued to fulfil a key role in most lending decisions taken during this era.
Matthew Hollow

Between Novelty and Fashion: Risk Management and the Adoption of Computers in Retail Banking

This chapter explores developments in researching the adoption of applications of computer technology by retail deposit-accepting financial institutions. Contributions to date suggest an understanding of both technological and business decisions. This is a research agenda informed by developments in the history of computing and in business history because the analysis of computer applications in business should consider not only how decisions came about but also the expectations of decision makers and the context and stakeholders that helped to shape business decisions. This is a view which aligns with that of Wadhwani and Jones’ (2014) ‘constitutive historicism’ or the investigation of how economic actors’ perceptions of their own places in historical time shape their strategies.
Bernardo Bátiz-Lazo

Third Part: Methodological Tools for Historians: Network-Theory, Principal-Agent-Relationship, Behavioural Finance and Social Capital

Frontmatter

Social Capital Versus Commercial Profits: The Impact of Networks on Decision-Making in Early Modern Banks

Historians and economists have generally emphasised the role of economic, political and institutional contexts (such as monetary trends, wars, forms of regulation, etc.) in the shaping of early modern business strategies. It appears, however, that an important social factor is often neglected in such analyses: networks. Based on the records of a major sixteenth-century merchant-banking firm (the Salviati), this paper highlights the central role of networks in decision-making processes, by showing how networks impacted on the notion of profit driving the economic action of early modern banks. This is manifest at three levels, namely (1) shaping of the accounting system; (2) fixing of interest rates in deposit and exchange transactions; and (3) regulation of opportunistic behaviour.
Nadia Matringe

Risk Management, Credit and the Working of Merchants’ Networks in Early Modern Banking

This chapter contributes to the debate on the organisation of long-distance trade in early modern Europe. It challenges the commonly attributed importance of familial, city-based, regional, national, ethnic or religious affiliations to generating trust, credit and risk mitigation. Based on an analysis of the exchange business of the Antwerp banker de la Bistrate and of his European correspondents in the seventeenth century, the crucial importance of commission trading for the structuring of early modern trade and trade relations is stressed. It is demonstrated that risk mitigation relies on procedures that are inherent to the system of commission trading. The notions of credit and reputation relate intrinsically to the principal-agent relationship for which this chapter provides a new understanding with respect to the commonly accepted model.
Daniel Velinov

The Role of Group Psychology in Behavioural Finance: A Research Starting Point for Banking, Economic, and Financial Historians

This paper discusses the significance of group psychology within the field of behavioural finance in order to provide a starting point for researchers in banking, economic, and financial history. Some of the major themes of behavioural finance are presented, including overconfidence, representativeness, anchoring, worry, and herd behaviour. The other major portion of this piece examines group behaviour within the investment decision-making process, drawing on the social sciences (largely social psychology) to consider the topics of group polarisation and groupthink. The author provides an overview of each topic to encourage researchers to investigate these important issues as potential causes of historical events within banking, economics, and finance. Of course there are limitations to applying behavioural finance theories and themes to historical research. Historians should investigate these potentially new ideas with a degree of caution.
Victor Ricciardi

Behavioural Finance as a Methodological Approach for Historians? A Field Report Concerning the Construction of the Canal of Corinth in Nineteenth-Century Greece

Historians investigating the risk perception of bankers and the decision-making processes in banks could consider the behavioural finance approach to investigate their sources. In this chapter, this is illustrated using a case study concerning the financing of the construction of a maritime canal at Corinth (1882–1893). It can be shown that the risk perception of the French bank Comptoir d’Escompte can be analysed following the model of Joseph A. Litterer. The bankers’ investment decision was influenced by two biases described by behavioural finance as ‘belief in experts’ and ‘overconfidence’. The analysis of the way these biases came about and worked allows banking, political and cultural history to be combined in a coherent narrative.
Korinna Schönhärl

Considerations of Social Capital and Future Research in Banking History

This paper examines the relationship between business or banking history and general history. The author casts doubt on the idea that methodological innovation alone can bridge the gap between sub-disciplines and general history. However, it seems that the relationship may be improved by testing the concept of social capital, which has to date only been used in banking history in a very limited way. This promises to raise and answer new questions. Furthermore, banking historians can meet the interests of general history by contributing their specific expertise to several current debates on the future of democratic capitalism.
Morten Reitmayer

Backmatter

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