Fashion trends about banking business models, from the 1850s tillFashion trends about banking business models, from the 1850s till todaytoday

Hubert Bonin, professor of modern economic history at the Institut d’études politiques de Bordeaux & at UMR GRETHA-Bordeaux Montesquieu University [www.hubertbonin.com]

1. Issues: Fashions at stake about banking business models

To insert banking history into a “fashions” topics could seem far-fetched; but the history of management is rich with internationalised fashion trends1, “mania”, and conventionality as the business community and academic experts ever desperately looked for management patterns to climb on the waggon of a more speedy train of growth and competitiveness. The banking community did not escape to such a challenge: we intend to scrutinize the “business models” which were successively praised about banks by economists, journalists, public authorities, academics, and even finally members of Parliament (when laws of regulation had been set up), which created a process of “business fashions” and somewhat of herding behaviours2

and cultural frameworks among business elites (and their regulators). From periods to periods, a “compelling logic” fostered a reshaping of mindsets and in the end of the banking habits in favour of the universal banking model or conversely of a specialisation between commercial banking and investment banking: there are “fashions” when patterns are adopted systematically, perhaps without considering the whole range of positive and negative aspects of the move and thus increasing procyclical trends which could finally threatens the balance of the banking system itself – which explains the recurrent “cycle” when universal banking has been praised or when onn the contrary refocusing and specialisation regained momentum.

The perception of the causes of crisis, and of the best ways to fuel growth and the financing of firms (either middle-size or big exporting ones) often led experts to conceive optimal “models”, either for the banking system as a whole or for banks as firms. From the midth of the 19th century, banking business models were shaped up, against the “merchant banking” one, which seemed obsolete, and diverse types of models were promoted, “universal banking”, “mixed banking”, “regional banking”, “house banking”, etc. – without taking here into consideration overseas or colonial banking. Then, in the 1930s-1940s, banking laws of regulation had put ahead the specialisation of banks, which fixed a term to previous trends promoting “mixed banking” and “regional banking”. But they were questioned from the 1980s to determine how the markets of money could function at best to foster

1 See Patrick Fridenson, “La circulation internationale des modes managériales”, in Jean-Philippe Bouilloud & Bernard-Pierre Lécuyer (eds.), L’invention de la gestion. Histoires et pratiques, Paris, L’Harmattan, 1994, pp. 81-89. Eric Abrahamson & Gregory Fairchild, “Management fashions : life cycles, triggers, and collective learning processing”, Administrative Science Quarterly, 1999, n°44, pp. 708-740 (also in: Human Resources Abstracts, 2000, 35, n°2).2 See A. Baner Jee, “A simple model of herd behaviour”, Quarterly Journal of Economics, 1992, n°107 (3), pp. 797-817. Sushil Bikhchandani, D. Hirschleifer & I. Welch, “A theory of fads, fashions, customs, and cultural change as informational cascades”, Journal of Political Economy, 1992, n°100 (5), pp. 992-1026.

competitiveness within freshly “open economies” and within the framework shaped by the third industrial revolution.

Recently, there was apparently a convergent evolution between the moves of the economy (third industrial revolution, globalisation), and the moves of money and banking industries. The 2007/2010 crisis seems to question such a mindset: was the universal banking model a mere fashion trend? And a mere renewed attempt to promote past fashions, which seemed to have been rejected by banking and banking history? Or was universal banking the key leverage to economic power, with even a “cost of rejecting universal banking”3? We aim to dive into history to refresh memories about past fashionable trends about universal banking model and moreover to determine why, on specific moments of economic history, the universal banking model was praised as a leverage force to accelerate the course and scope of growth. We shall follow the outlines of about half of dozen fashion trends, which, despite well-known among banking historians, will foster our exercise of style about business fashions indeed: Saint-Simonian schemes in the mid-19th century and the Crédit mobilier scheme, the German model of HausBank or mixed banking model, the rejection of universal banking and of mixed banking models, the rebuilding of a model of universal banking in the 1960s-1980s, the issue of universal banking in the 1990s-2000s.In a nutshell, we could (even if a commonplace assertion among banking historians indeed!) remind of the recurrent issue about the universal banking model: it was mobilised as a leverage force, first to fight against backwardness (within the “Gerschenkron path”4), second to supply larger and longer financing to industry in order to accelerate growth – that is all in all to mobilise “sleeping funds” (hoarded, liquid or savings ones) in favour of industry and services growth, to accelerate economic history.

We must beforehand supply a definition of what we mean as universal banking through our text. We do not consider the mere shift of commercial banking towards diversified combines either in retail banking, or in corporate banking, or last in investment banking, each bank had been enriched with a broad portfolio of activities dedicated to prospect every segment of the customer layers to be considered. What we do mean as universal banking, without originality, is the overlapping between retail banking and corporate banking on one side, and investment banking on the other side, that is the convergence of lending activities and of the management of means of payment on one side, and the securities issuing, underwriting and brokering activities, and structured finance (long term lending, financial engineering, project financing) on the other side. The “universal banking fashion” issue had ever taken shape when stake-holders (public authorities, experts, utopians, etc.)

3 Charles Calomiris, “The Costs of Rejecting Universal Banking: American Finance in the German Mirror, 1870-1914”, in Naomi Lamoreaux & D. M.G. Raff (eds.), Coordination and Information: Historical perspectives on the Organization of Enterprise, Chicago, University of Chicago Press, 1995, pp. 257-315.4 Douglas Forsyth & Daniel Verdier (eds.), The Origins of National Financial Systems. Alexander Gerschenkron Reconsidered, London & New York, Routledge, 2003. Daniel Verdier, Moving Money. Banking and Finance in the Industrialized World, Cambridge, Cambridge University Press, 2002.

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presumed that the second group of constituents had to be mobilised more intensively to securitize the financing of companies and of basic equipment of a country and to accelerate the path of reshaping the economy (domestically or abroad).

In fact, the very issue to be raised is what is a bank5, that is an old and vast issue with new paths of reflection. Royal Bank of Scotland listed its activities in a recent ad: “Capital markets, banking, wealth management, insurance”6, which leaves open the question about how RBC perceives itself as a bank, practicing “banking” but also two (on three) other activities classically linked with banking… Present banks’ ads show that forms of universal banking are only extension of core profession to more developed, enriched, “intensified” services. When one speaks of insurance, wealth management/private banking, cards management, consuming and housing credit, offering of mutual funds, these activities are mere extensions of retail banking; they are new and far more developed portfolios of skills, but within the same framework of commercial banking, without a revolution “in nature” of their economic function, satisfying individual, professional or SMEs layers of clients. And the same for the new fields of structured finance, public finance industry, international underwriting in the City, then on the euromarket, last on the international finance market, international M&A engineering and financing, and even the very recent “securitizing” processes (CDOs, etc.), which are mere extensions of corporate banking and of merchant and investment banking towards a “general/universal” umbrella. The formulation of assets management from the 1960s was also an extension of the management of “private” and informal funds in the name of institutional investors (insurance companies, retirement funds, etc.) and high-range fortunes which had been practiced either by commercial banks (the division of “la Haute Banque” at Crédit lyonnais, for instance, till WWII) or by investment banks (French or Belgian banque d’affaires, for example), in competition with Privat Banken, banques privées and other kinds of “niche banking”. What had changed was the revolutionary size of the activity, the trivialization of mutual funds from the US to all over Europe and Japan, and the autonomy reached in practice then because of regulation by the institutions tackling assets management (SGAM-Société générale Assets Management, etc.).

To dig into our core topics, what is “new” or then “fashionable” is ever the fact that specialised banks gathered (more or less durably, till a crash) the whole range of activities under a single roof and thus became “universal” – all the more when those institutions duplicated this extension internationally. Fragility came out from the unability of bankers to grapple such a broad panel of strategic activity because essentially of bad management of risks. That raised another issue, but intimately linked with the main one: is un manageable? Each big crash led to enhance such a question, which paved the way for instance to the “anti-universal banking regulation fashion” in the 1930s-1960s. The recent crisis showed what was finally at stake: the ability of universal banking adepts to find out counterparties on the liabilities column of the balance sheet (either enough treasury or refinancing lines, or permanent 5 See Frederic Mishkin, Christian Bordes, Pierre-Cyrille Hautcoeur & Dominique Lacoue-Labarthe, Monnaie, banque et marchés financiers, Paris, Pearson Éducation, 7th edition, 2004. Robert Litan, What Should Banks Do?, Washington, Brookings Institute, 1987.6 Ad published in The Economist, 25 April 2009, p. 19. See [www.rbc.com/moveforward].

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funds) to face the multiplied risk on the availabilities lines, because the more universal banking was/is extended, the more conglomerate banking prevailed/prevail, the more it seemed/seems to require financial buttressing.

The very sensitiveness to such an issue explains altogether the instability and the recurrence of universal banking fashions. Bankers active in middle and long terms commitments were supposed to be able to find out counterparties or collaterals and thus to get a more or less solid and reliable balance sheet; this raised the issue of the degree of “mixity” which became “fashionable”, when the “general opinion’ (among experts, in fact) thought that short term resources had to be more “transformed” into middle and long term assets. That was the key “fashion” indeed, impulsed by impatience, by some degree of spirit of enterprise, leading actors to some forms of complacency towards the elevation of risks endured by “universalised” banks and thus in final the increasing of a risk of “systemic risk” because of a general move of pressure exerted on balance sheets. “Fevers” or “manias” of impatience vis-à-vis the banking community, from the business community, the state authorities or “enlightened” opinion advocated in favour of universal banking, because expectations of bankers being more “pathbreaking”, more assertive, more inflationary through their portfolios of durable credits (overdrafts, middle term credits to exports) and through their involvement in long term loans and even equity participations – pending brokering securities all over the investors’ chain. Universal banking fashion cannot but raise concerns about “liquidity” and the ability of a banking system based on universal banking to refinancing itself, and this explains the boiling arguments among historians and economists about the risk of universal banking, with the risk of looking as “conservative minded”.

Our analysis has be prepared within our middle-term research program about investment banking history, as fashions regularly called for a mixed type of banking, joining deposit and commercial banking, and corporate and investment banking into a single organisation, which faces another strategy, focused on specialised investment banks, maisons or boutiques. Our approach will remain an empirical one. We intend to talk of “fashion” without measuring the frequency of quotations through formalised figures. We shall assess the perception of fashion through informal “clouds” of opinion, governements, publicists, economists, theoricians of their time, etc. Arguments will be (partly) reconstituted; the opinion of business and politics elites will be reconstituted; literature of past times will be used. Our sources were found among academic journals, banks’ archives, State’s archives, experts’ reports, and business magazines or newspapers, which will favour comparisons between both countries and banking systems.

2. A Crédit mobilier fashion (1820s-1890s)

Saint-Simonian theories7 called for a new banking model and first set up the basis for a “fashion” towards “modern” banking, inspired from the British model and from arguments about France’s backwardness. Banks had to mobilise hoarded money, to lure savers through trust and services, either

7 Bertrand Gille, “Les saint-simoniens et le crédit », in Bertrand Gille, La banque et le crédit en France au XIXe siècle, Geneva, Droz, 1961.

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through collecting deposits, or through brokering issued securities8; then they had to practice “banking industry” (middle term overdrafts, credits on collaterals, or warrants on inventories), as was supposed to be achieved in England – and finally historians (Lucy Newton, Mark Casson9, Philip Cottrell10, etc.) proved that that was the case –, and they had to become players on the financial market, beyond the predominant State or municipal bonds: utilities and metal industry was thirsting for equity, and the successive “manias” pushed forward the habit of balancing country real estate, city property, luxury goods or hoarded cash by investing into securities. The syndrome of French backwardness against British (and also Belgian) industrial revolution fostered hot arguments among Saint-Simonian theoricians, but also all over the enlightened civil servants in charge of finance and trade, chambers of commerce (with their numerous “petitions” to the State demanding ever more investment forces, mainly for utilities), etc. All these concerns ended focusing on the “révolution du crédit”, which was then understood as transferring an imagined “universal banking model” from the UK or from Brussels (Société générale de Belgique11, Banque de Bruxelles, etc.). Beyond thery, the banker Jacques Laffitte12 tried to set up such a “modern” universal banking model through successive banks, which all failed because of the discrepancy amid their balance sheet between middle term undertakins and volatile resources.

The main result was that French “Crédit mobilier” of Pereire brothers13 was praised as a leverage force to the first industrial revolution throughout Europe. It fuelled arguments and foundations in France itself, but was also used throughout Europe as a hallmark for the banking revolution taking off in the second half of the century, mainly in Spain (Crédit mobilier espagnol), Italy and the Danubian area, where “Crédit mobilier” banking became “fashionable” – whereas in France (after the 1860s-1880s misfits), along with the Great Britain model, explicit or pragmatic rules of liquidity prevailed. The failure of Crédit mobilier (collapsing in 1867) does not condemn the universal banking model to gather momentum.

8 Pierre-Cyrille Hautcoeur, “Chapitre 7. De nouvelles institutions bancaires”, in Pierre-Cyrille Hautcoeur (ed.), Le marché financier au XIXe siècle, Volume 1. Récit, Paris, Presses de la Sorbonne, 2007, pp. 251-272.9 Michael Collins, Banks and Industrial Finance in Britain, 1800-1939, London, MacMillan, 1991. Andrew Godley & Duncan Ross (eds.), Banks, Networks and Small Firm Finance, London, 1996.10 Philip Cottrell, Industrial Finance, 1830-1914. The Finance and Organization of English Manufacturing Industry, London, Methuen, 1979. 11 Herman van der Wee & Monique Verbreyt, La Générale de banque. Un défi permanent, 1822-1997, Brussels, Racine, 1997. René Brion & Jean-Louis Moreau, La Société générale de Belgique, 1822-1997, Anvers, Fonds Mercator, 1998.12 Hubert Bonin , “Jacques Laffitte, banquier d’affaires sans créer de modèle de banque d’affaires”, in Jacques Marec (ed.), Le banquier Jacques Laffitte, 1767-1844, Maisons-Laffitte, Société des amis du Château de Maisons, 2008, p. 57-78. Maurice Brun, Le banquier Laffitte, 1767-1844, Abbeville, F. Paillart, 1997.13 Bertrand Gille, “La fondation du Crédit mobilier et les idées financières des frères Pereire”, in Bertrand Gille, La banque et le crédit en France au XIXe siècle, Geneva, Droz, 1961. Elisabeth Paulet, The Role of Banks in Monitoring Firms. The Case of the Crédit Mobilier, Londres, Routledge, 1999. Elisabeth Paulet, “Financing industry: The Crédit mobilier in France, 1860-1875”, Journal of European Economic History, 2002, volume 31, n°1, pp. 89-112. Jean Autin, Les frères Pereire. Le bonheur d’entreprendre, Paris, Perrin, 1984.

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Several historians have related and reconsidered the arguments among business and banking elites about the universal banking model. Diversification and risk-taking first generally prevailed by the “new banks”14, mixing commercial and deposit banking one one side, and investment banking on the other side – because of direct investments in patronaged new companies (railways, metal, shipping, etc.), of involvement in trade financing (Société générale and guano, Comptoir d’escompte and copper15, etc.), and of thick portfolio of durable credits (two or three years overdrafts, often with a few sponsored corporate clients, thus with an insufficient division of risks), and of financial assets. The universal banking model, more or less with the support of Banque de France16, spurring the extension of French money market, was practiced by young Comptoir d’escompte de Paris17, linked with “financiers”, by young Crédit lyonnais18, by young Société générale19 and, on a smaller scale, by Crédit du Nord20; manias fostered a few other “big” banks, which were swallowed by crashes (Banque de l’Union générale21 in 1882, etc.). Even a few merchant banks22 of the Haute Banque did not keep still and added to trade and forex finance and to wealth management a few universal banking behaviours through engineering and co-investing about a few “structured projects” (railways, mining, etc.).

What put a halt to such a fashion were the disappointments caused by the practice of the universal banking model. Several historians told about the bad losses (on credits or on investments) impaired by banks engaged on the way of universal banking, all the more because recessions in bursts were caused by the Great Depression (in France, in 1882-1895). Far after Crédit mobilier

14 David Landes, “Vieille banque et banque nouvelle : la révolution financière du dix-neuvième siècle”, Revue d’histoire moderne, III, 1956, pp. 204-222.15 Bertrand Gille, “Un épisode de l’histoire des métaux : le krach des cuivres”, Revue d’histoire de la sidérurgie, volume 9, n°1, 1968. Robert Hentsch, Hentsch. Banquiers à Genève et à Paris au XIXe siècle, Paris, self-edition, 1996.16 Alain Plessis, La politique de la Banque de France sous le Second Empire, Geneva, Droz, 1985. Alain Plessis, “The Banque de France and the emergence of a national financial market in France during the nineteenth century”, in Philip Cottrell, Even Lange & Ulf Olsson (eds.), Centres and Peripheries in Banking. The Historical Developments of Financial Markets, London, Ashsgate & EABH, 2007, pp.143-160. Alain Plessis, « La révolution de l’escompte dans la France du XIXe siècle”, Revue d’histoire du XIXe siècle, 2001, 23, pp. 143-163.17 Nicolas Stoskopf, « Alphonse Pinard et la révolution bancaire du Second Empire”, Histoire, économie & société, 1998, n°2, pp. 299-317. Nicolas Stoskopf, “La fondation du Comptoir national d’escompte de Paris, banque révolutionnaire (1848)”, Histoire, économie & société, 2002, n°3, pp. 395-411.18 See Bernard Desjardins, Michel Lescure, Roger Nougaret, Alain Plessis & André Straus, Le Crédit lyonnais, 1863-1986. Études historiques, Geneva, Droz, 2002. Jean Bouvier, Le Crédit lyonnais (1863-1882). Naissance d'une grande banque, Paris, SEVPEN, 1961; Flammarion, 1968; EHESS, 1999.19 Bertrand Gille, “La formation de la Société générale” ; “Les premières années de la Société générale (1864-1870) ”, in La banque et le crédit en France au XIXe siècle, Geneva, Droz, 1961. Hubert Bonin, Histoire de la Société générale. I. 1864-1890. Naissance d’une banque, Geneva, Droz, 2006.20 Hubert Bonin, Histoire de banques. Crédit du Nord, 1848-2003, Paris, Hervas, 1998 and 2004.21 Jean Bouvier, Le krach de l'Union générale (1878-1885), Paris, Presses universitaires de France, 1960.22 Bertrand Gille, Histoire de la maison Rothschild (1817-1870), Geneva, Droz, 1965 & 1967. Jean Bouvier, Les Rothschild, Paris, Fayard, 1967; second edition, Brussels, Complexe, 1985. Bertrand Gille, Histoire de la maison Rothschild (1817-1870), Geneva, Droz, 1965 & 1967.

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itself in 1867, Union générale was rubbed off in 1882, Société générale had to dismiss its chairman in 1886; Comptoir d’escompte de Paris collapsed in 1889; several regional “modern” banks endured such harsh crisis that their balance sheet had to be stripped off bad lines (Crédit du Nord, notably). The universal banking fashion lost momentum indeed, in favour of what became knowned under the name of “doctrine Henri Germain”, after the name of the chairman of Crédit lyonnais in 1863-1905, which drew strategic and managerial lessons from the crisis crossed by his bank: liquidity had to prevail henceforth, and successful grands établissements de Paris (big banks) rallied this principle, which had already been put ahead by Crédit industriel et commercial23, and the successor of Comptoir d’escompte de Paris, Comptoir national d’escompte de Paris (CNEP), was also a promotor of drastic rules of liquidity. Such a path towards focusing on deposit and commercial banking axed on liquidity explains the dualism set up within Paris banking system, with banques de dépôts (privileging discount and short-term overdrafts, brokerage of securities, trade financing, and forex operations) and banques d’affaires (investment banks, like Paribas24, Rothschild, Banque de l’union parisienne25, several maisons de Haute Banque), whilst the State imposed (in 1857 and once more in 1895) to Caisses d’épargne (400 local savings banks)26 to avoid lending and to channel the collected savings towards Caisse des dépôts et consignations, solely in charge of investing these assets on the financial market (mainly State bonds). The universal banking model had vanished from Paris in the 1880s-1890s.

From the 1860s-1890s onwards (and till the 1980s in fact), the Paris banking market could have seemed static and stable, without waves of “fashion”. As far as the deposit banks were concerned, the profits from their activities [banking and “services rendered”] represented a much higher percentage of the total. This was true because of first, a difference in their fundamental tenets; it was also true due to a difference in their organization and client research. Regarding the basic doctrine: deposit bank operations had immediate outcomes, while in the case of investment banks, some amount of locking up was to be accepted. Regarding the organization: deposit banks had a large number of branch offices and customer counters, with an extremely large and varied client base. And though the big investments by large corporations were important to it, the smaller but more numerous savings accounts played a significant role in the functioning of deposit banks. This was very different in the case of investment banks which, generally speaking, did not pursue – they might not even have the means – the smaller, individual savings account holders. In fact, it was the surplus funds deposited by some companies which allowed it to cover the needs of the others.

These differences in doctrine and organization were associated with differences in the practical outcome. In the case of investment banks: less

23 See Nicolas Stoskopf, 150 ans du CIC, 1859-2009. I. Une audace bien tempérée, Paris, Éditions La Branche, 2009. Nicolas Stoskopf, 150 ans du CIC, 1859-2009. II. Un album de famille, Paris, Éditions La Branche, 2009.24 Éric Bussière, Paribas, l’Europe et le monde, 1872-1992, Anvers, Fonds Mercator, 1992.25 Hubert Bonin, La Banque de l’union parisienne. Histoire de la deuxième banque d’affaires française (1874/1904-1974), Paris, PLAGE, 2001. 26 Daniel Duet, Les Caisses d’épargne, Que Sais-Je? series, Presses universitaires de France, Paris, 1991, reedited in 2000.

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power but more flexibility; a larger proportion of operations in the medium term, a larger proportion of acceptations of the total risk – this for bank work; as for the financial aspect, immobilizations and, first and foremost, equity participation – which the deposit banks totally avoided. Actually, while the two types were, on the whole, competitors, very often they ended up supplying clients to each other because of the differences in their activities. This was true for bond issues where the major portion was negotiated and guaranteed by the investment banks, while the placement itself was more in the line of the deposit banks because of their close ties with customers with money to invest. For the issue of shares, the investment banks stood guarantee in a much bigger way than the deposit banks, while the latter concentrated much more on counter transactions.

3. Fashion trends in favour of the German model of HausBank, of regional banking, or of mixed banking model

Such a dualist and perennial structure was anyway contested by another circle of “enlightened” elites. All over the regions (“la province”) a surge of discontent against “les grands établissements de Paris” took shape throughout the first three decades of the 20th century, because Paris banks were accused27 to favour international expansion instead of cocooning domestic: small and medium sized entreprises28 faced the urgency of reconversion to adapt themselves to the new conditions of the second industriel revolution (with electrification, etc.); either provincially or in the Paris suburbs (where they were numerous), start-ups felt the need to get new forms of financing29 (more durable credits, etc.) to finance inventories, more machinery, more commercial networks and expansion abroad. Even deposit banks had to propose some kinds of middle-term credits through specialised affiliates30.

One challenge interfered with mere economic considerations when the competitiveness of France against Germany became at stake, because before WWI French elites were astonished by the rapid German ascension and its financial power31, and concerned by its effects on its military power, and because after WWI a rush to compete with renewed Germany seemed necessary. More and more what was perceived as the “German model” of

27 Lysis, Contre l’oligarchie financière en France, new edition, Paris, Albin Michel, 1911 (with notably articles published by La Revue financière, 15 December 1906, 1st and 15 February 1907). See Patrick Éveno, “L’image du Crédit lyonnais à travers la presse française”, in Bernard Desjardins, Michel Lescure, Roger Nougaret, Alain Plessis & André Straus (eds.), Le Crédit lyonnais, 1863-1986. Études historiques, Geneva, Droz, 2002, pp.833-850.28 Michel Lescure, PME et croissance économique. L’expérience française des années 1920, Paris, Économica, 1996.29 Hubert Bonin, Les banques françaises dans l’entre-deux-guerres, volume II: Les banques & les entreprises en France dans l’entre-deux-guerres (1919-1935), Paris, PLAGE, 2000.30 Hubert Bonin, “‚Blue angels’, ‚Venture Capital’, and ‚Whales’: Networks financing the take-off of the second industrial revolution in France (1890s-1920s)”, Business & Economic History On-Line, volume 2, 2004 [http://www.thebhc.org/BEH/04/bonin.pdf], p. 1-49. Hubert Bonin, “Banque et création d’entreprise dans la France des XIXe et XXe siècles”, in Jacques Marseille (ed.), Créateurs et création d’entreprises de la Révolution industrielle à nos jours, Paris, Publications de l’Association pour le développement de l’histoire économique (ADHE), 2000, pp. 115-137.31 Raymond Poidevin, “La puissance financière de l’Allemagne, 1890-1914”, Relations internationales, n°29, printemps 1982, pp. 33-64.

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Haus Bank and of industrial banking – whatever the reality32 – was praised33, and when German business seemed to be better financed than the French one, a “mania” demanded that French banks be more committed to their business constituents and practice “banque à l’allemande”34. “Regional banking”35 was asserted by numerous elites to promote a relationship of proximity36, embeddedness, and trust. A special parliamentary commission in the 1910s paved the way to “Popular Banks” (like Volksbanken) (through a 1917 law)37, dedicated to small enterprises and professionals.

And the “mixed banking” model regained momentum, with a few national experiences, which reached an apex in the 1920s. Banque nationale de crédit38, Banque des Pays du Nord, Crédit commercial de France39, Banque d’Alsace-Lorraine, Banque Adam, Banque Oustric40 for example promoted and praticed new types of banking – universal banking indeed, balancing deposit and commercial banking and “industrial” or event “investment” banking –, and their managers preached in favour of a more committed practice of lending. Sure, Britain was not exempt of arguments about bank’s ability to

32 Carsten Burhop, Die Kreditbanken in der Gründerzeit, Bern, Peter Lang, 2004. Caroline Fohlin, “Universal banking in Pre-World War I Germany: model and myth”, Explorations in Economic History, 36, 1999, pp. 305-343. Ranald Michie, “Banks and securities markets, 1870-1914”, in D. J. Forsyth & D. Verdier (eds.), The Origins of National Financial Systems. Alexander Gerschenkron reconsidered, London, Routledge, 2003, pp. 43-63.33 See Henri Hauser, Les méthodes allemandes d’expansion économique, Paris, Armand Colin, 3rd edition, 1916. Georges Dernis, La renaissance du crédit allemand, Paris, Presses universitaires de France, 1927.34 Hubert Bonin, “Les relations bancaires franco-allemandes (1900-1970) : admiration, guerre économique et coopération de voisinage”, in Jean-François Eck, Stefan Martens & Sylvain Schirmann (eds.), Les relations franco-allemandes de 1871, à nos jours, Paris, Publications du CHEFF, 2009, pp. 357-383.35 Hubert Bonin, “Les banques régionales et l’industrie française (de 1920 à nos jours). Essai de problématique”, in Maurice Lévy-Leboyer (ed.), Les banques en Europe de l’Ouest de 1920 à nos jours, Paris, Comité pour l’histoire économique & financière de la France, 1995, pp. 201-222. Hubert Bonin & Christophe Lastécouères (eds.), Les banques du grand Sud-Ouest. Système bancaire et gestion des risques (des années 1900 à nos jours), Paris, PLAGE, 2006. Hubert Bonin, “Vieille banque et nouvelle banque : les banques bordelaises au tournant du XXe

siècle”, in Michel Lescure & Alain Plessis (eds.), Banques locales et banques régionales en France au XIXe siècle, Albin Michel, Mission historique de la Banque de France, 1999, pp. 237-273.36 Hubert Bonin, “The demand for banking deconcentration in France, 1900-1997: a recurrent endeavour to alleviate big banks’ hegemony”, in Manfred Pohl, Teresa Tortella & Herman Van der Wee (eds.), A Century of Banking Consolidation in Europe. The History and Archives of Mergers & Acquisitions, Aldershot UK, Ashgate, 2001, p. 213-235. Les banques françaises dans l’entre-deux-guerres, Tome I : L’apogée de l’économie bancaire libérale française (1919-1935), Paris, PLAGE, 2000.37 Élisabeth Albert, Les Banques populaires en France (1917-1973), Paris, Économica, 1997. Élisabeth Albert, Les Banques populaires en France, 1878-2009, 130 ans de coopération, Paris, Eyrolles, 2008. Félix Torres (ed.), Caisse centrale des Banques populaires, 1921-1996. 75 ans d’histoire, Paris, 1996.38 Hubert Bonin, La Banque nationale de crédit. Histoire de la quatrième banque de dépôts française en 1913-1932, Paris, PLAGE, 2002. 39 Jean-Pierre Daviet & Michel Germain, CCF, 1894-1994. Crédit commercial de France, une banque dans le siècle, Paris, Textuel, 1994.40 Hubert Bonin, “Oustric, un financier prédateur ? (1914-1930)”, Revue historique, October 1996, CCXCV/2, pp. 429-448.

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finance industry41, even about regional banking42, but one could pretend that a genuine “fashion” of reintroducing the universal banking model got stronger and stronger in France in the 1900s-1920s.

Regionally, a layer of experts, bankers and businessmen pleaded in favour of “banques régionales”43 and an extended practiced of overdrafts, complacent collaterized credits and moreover the issuing and brokering of shares of (family or not) medium enterprises within a network of wealthy local investors mobilised by bankers: those regional bankers ought to be altogether deposit and commercial bankers and local investment bankers thanks to this oversize practice of corporate banking44. And such a fashion got completion all over the country, where here and there “banque à l’allemande”45 was praised or more commonly mixed banking, sometimes within the framework of almost “pre-industrial districts”46, which confirmed the “fashion” in favour of such forms of universal banking.

41 See Michael Collins & M. Baker, “Sectoral differences in English bank asset structures and the impact of mergers, 1860-1913”, Business History, volume 43, October 2001, pp. 1-28. Michael Collins & M. Baker, “English commercial bank liquidity, 1860-1913”, Accounting, Business & Financial History, volume 11, n°2, 2001, pp. 1-14. Andrew Godley & Duncan Ross (eds.), Banks, Networks and Small Firm Finance, Londres, 1996. Michael Collins, Banks and Industrial Finance in Britain, 1800-1939, Cambridge, MA, 1996.42 Francesca Carnevali, “Les banques régionales en Angleterre au XXe siècle”, in Michel Lescure & Alain Plessis (eds.), Banques locales et banques régionales en Europe au XXe siècle, Paris, Albin Michel, 2004.43 Michel Lescure & Alain Plessis (eds.), Banques locales et banques régionales en Europe au XXe siècle, Paris, Albin Michel, 2004.44 Hubert Bonin, “Les mutations des banques du Sud-Est dans l’entre-deux-guerres (1919-1935)”, Cahiers d’histoire, Lyon, XLI, n°3, 1996, pp. 343-380. Hubert Bonin, “Les banques rhône-alpines aux XIXe et XXe siècles”, in Yves Lequin (ed.), Région Rhône-Alpes, 500 années-lumière. Mémoire industrielle, Paris, Plon, 1991, pp. 332-389. H. Bonin, “Les banquiers grenoblois des années 1890-1940 : un modèle spécifique ? ”, in Hervé Joly (et alii) (eds.), Des barrages, des usines et des hommes. L’industrialisation des Alpes du Nord entre ressources locales et apports extérieurs. Études offertes au professeur Henri Morsel, Grenoble, Presses universitaires de Grenoble, 2002, pp. 185-209.45 Christophe Lastécouères, “L’émergence des banques à l’allemande en Aquitaine dans les années 1930 : un anachronisme ?”, in Michel Lescure & Alain Plessis (eds.), Les banques locales et régionales en Europe au XXe siècle, Paris, Albin Michel, 2004. Christophe Lastécouères, Les feux de la banque : oligarchie et pouvoir financier dans le Sud-Ouest, 1848-1941, Paris, CTHS, 2006. Christophe Lastécouères, “Le financement bancaire d’une économie régionale : le cas du Sud-Ouest (1880-1914)”, in Olivier Feiertag & Michel Margairaz (eds.), Politiques et pratiques des banques d’émission en Europe (XVIIe-XXe siècles). Le bicentenaire de la Banque de France dans la perspective de l’identité monétaire européenne, Paris, Albin Michel, 2003, pp. 223-245.Jean-Pierre Allinne, Banque Pouyanne (1903-2003). Histoires d’entrepreneurs, Orthez, Banque Pouyanne & Editions Gascogne, 2003.46 Michel Lescure, “Entre ville et campagne, l’organisation bancaire des districts industriels : l’exemple du Choletais, 1900-1950”, in Jean-François Eck & Michel Lescure (eds.), Villes et districts industriels en Europe (XVIIe-XXe siècles), Tours, Presses de l'Université de Tours, 2002.

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What room of manoeuver was thus attributed to investment banks? Surely Paribas47 and Banque de l’union parisienne48 did stretch their activities all over Europe, for instance competing to develop their business in Central Europe, and both, joined by Rothschild and Mirabaud49, were also involved in the colonial empire. But all of them (and also Banque des pays du Nord, and a few maisons de Haute Banque) did not abandon the domestic market for capital finance; they were not “outfashioned” or “obsolete” indeed because they kept their key function of lead managers for the issuing and underwriting operations and mobilised their own networks among institution investors and through their own private banking division or their classical partnership with deposit banks to extend the brokerage of public securities and of larger and larger packs of private equity (domestic ones or foreign ones), and they contributed thus to the competitiveness of the Paris capital centre50.

In fact, some of them (Lazard, Banque de l’union parisienne) took profit of the universal banking fashion at “regional banks” because they attracted several of them as their “correspondent” in Paris for forex operations or refinancing operations. It has also been noticed (É. Bussière, H. Bonin) that investment banks dilated their collection of deposits as they felt the need to get far more short term (but stable as a whole) resources to finance their own range of corporate banking (overdrafts, mainly): they lure available amounts of treasury from insurance companies or big firms, and the liquid lines within their liabilities grew strongly, for instance in the interwar period, which provided them partly somewhat with a profile of universal banking.

4. The fashion of the rejection of universal banking and mixed banking models (in the 1930s-1960s)

47 Éric Bussière, Paribas, 1992, op.cit. Éric Bussière, La France, la Belgique et l’organisation économique de l’Europe, 1918-1935, Paris, Comité pour l’histoire économique et financière de la France, 1992. Éric Bussière, Horace Finaly, banquier, 1871-1945, Paris, Fayard, 1996. Éric Bussière, “Paribas et le financement des affaires d’électricité dans les années 1920 : entre stratégie bancaire et stratégie de groupe industriel”, in Dominique Barjot, Henri Morsel & Sophie Coeuré (eds.), Stratégies, gestion, management. Les compagnies électriques et leurs patrons, 1895-1945, Paris, Association pour l’histoire de l’électricité en France (Électra) & Publications de la Fondation Électricité de France, 2001, pp. 153-162. Éric Bussière, “Paribas and the rationalization of the French electricity industry, 1900-1930”, in Youssef Cassis, François Crouzet & Terry Gourvish (eds.), Management and Business in Britain and France. The Age of the Corporate Economy, Oxford, Clarendon Press, 1995, pp. 204-213.48 Éric Bussière, “La France et les affaires pétrolières au lendemain de la Première Guerre mondiale. La politique des groupes financiers à travers celle de la Banque de l’union parisienne”, Histoire, Économie, Société, n°2, 1982, pp. 49-64. Éric Bussière, “La Banque de l’union parisienne et l’existence d’un courant national dans les milieux pétroliers français dans l’entre-deux-guerres” », Relations internationales, n°43, 1985, pp. 305-322. H. Bonin, La Banque de l’union parisienne, 2001, op.cit.49 Alain Plessis, “Une maison de la Haute Banque parisienne : les Mirabaud et le financement des entreprises de la fin du XIXe siècle à la Seconde Guerre mondiale”, in Philippe Marguerat, Laurent Tissot & Yves Froidevaux (eds.), Banques et entreprises industrielles en Europe de l’Ouest, XIXe-XXe siècles, Droz, Geneva, 2000, pp. 239-250.50 Youssef Cassis, Capitals of Capital. A History of International Financial Centers, 1780-2005, Cambridge, Cambridge University Press, 2006. Hubert Bonin, “The challenged competitiveness of the Paris banking and finance markets, 1914-1958”, in Youssef Cassis & Éric Bussière (eds.), London and Paris as International Financial Centres in the Twentieth Century, Oxford, Oxford University Press, 2005, pp. 183-204.

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Anyway that fashion for the universal banking model, whatever the path being followed (regional banking, mixed banking, investment banks as deposit banks), crumbled when the banking system almost collapsed in 1931-1935. Already in these times, practioners of universal banking had forgotten the rules of balancing a balance sheet and the demands for durable counterparts to durable risks. Either the interbanking market dried up, or flows of deposits withdrew massively. The more banks were engaged into universal banking, the more they failed (Banque nationale de crédit, several big regional banks, etc.) or were on the brink of falling (Banque de l’union parisienne, ). Emotionnaly and intellectually, such a crash shook convictions in favour of universal banking. Beyond the rescue organised by Banque de France and the ministry of Finance, it appeared clearly that the most liquid banks (Crédit lyonnais, CNEP, CIC, Société générale, Crédit du Nord, etc.) had fared better through the crisis; and some of them even took in charge collapsed banks (mainly CIC, with several big regional banks being split between its regional affiliates; and Crédit du Nord, absorbing Banque générale du Nord).

Because of the krach, the propension to “liquidity” became the rule and fostered the trend to leave away universal banking. Sticking yet to “liberal” conceptions of the banking market, the authorities supported a self-regulating and self-reorganising evolution of the banking system, becore drastic laws51 were set up in 1941 and 1945/1946. “Specialization” became the motto, even if France first resisted to the model set up in several countries through laws forbidding universal banking. After WWII till the mid-1980s, specialization and specialised credits were promoted as the sole way to supply altogether stability and support to the various layers of the economy – and such a fashion was assumed by the leftists in 1977-1986 against big business and big banks – either nationalised or not. Even the leftists campaigned hard in 1981 in favour of a reinforcement of the “specialisation of credit”, to prop up lending to SMEs: more assertive and proactive regional banks (refinanced by reformed Banque de France) and specialised Paris banks ought to succeed in drawing the French economy from the general crisis of this time.

France therefore joined the global trend in favour of specialization, as fighting against universal banking had become a “fashion”, from the laws in Switerland and Belgium to the Glass-Steagall act52 in 1933. The segmentation of credit along short term (deposit commercial banks) and middle and/or long term (special half public institutions: Crédit national53, Crédit foncier, Banque française du commerce extérieur, Crédit agricole54) oriented commercial banks towards discount and overdrafts. A little number of investment banks (Paribas, Banque de l’union parisienne, which absorbed Mirabaud in 1953,

51 Claire Andrieu, La banque sous l’Occupation. Paradoxes de l’histoire d’une profession, 1936-1946, Paris, Presses de la Fondation nationale des sciences politiques, 1990. Claire Andrieu, “Les banques, par fidélité au programme du Conseil national de la Résistance”, in Claire Andrieu, Lucette Le Van-Lemesle & Antoine Prost (eds.), Les nationalisations de la Libération. De l’utopie au compromis, Paris, Presses de la FNSP, 1987, pp. 313-326.52 G.J. Benston, The Separation of Commercial and Investment Banking, London, MacMillan, 1990. Vincent Carosso "Washington and Wall Street: the New Deal and investment bankers, 1933-1940", Business History Review, 64, 1970, pp. 425-445. 53 Patrick Beaubeau, Arnaud Lavit d’Hautefort & Michel Lescure, Le Crédit national. Histoire publique d’une société privée, 1919-1994, Paris, J.-C. Lattès, 1994.54 André Gueslin, Le Crédit agricole, Paris, La Découverte, 1985.

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Rothschild, Lazard, joined by junior competitors Banque de l’union européenne and Banque de l’Indochine, mainly, joined then by Banque de Suez & de l’Union des mines, then by Indosuez55) were thus to refocus on capital markets and to supply credit to big business, to reinforce merchant banking (and to patronize the rationalisation of the French productive system), and to assume the mission of accompanying big firms abroad (and for a while still in the colonial empire).

5. Fashion trends: towards a triumph of universal banking? (from the mid-1960s till to day)

In France, apparently, the “fashion” of universal banking did not reappear for about half a century, and the perennity of the “Anglo-Saxon model” (in the UK and the US) fostered faith into a well-estbalished system of specialization. But the demand to banks for more commitment to growth then into engineering a way out of the great crisis undermined the legitimacy of the banking system drawn up since the 1930s-1940s: could not universal banking be used once more as a leverage to accelerate changes? It had been considered as a factor of instability since the 1930s-1940s, and specialisation and regulation had fixed patterns able to determine stability levels and relevant circuits of liquidity. From the end of the 1960s to the 2000s, universal banking appeared more and more as a better leverage to financial and credit stability, to liquidity, to the circulation of money, in the long run. “Pure” investment banking started to seem “obsolete” because firms and actors of markets were to be prospected globally through a thoroug display of banking and financial services and products along “one stop shopping” model. Investment banks had therefore to question their business model, and they did it in France all the more because they had to bear the harsh pressure of their contenders rushing from New York (Merrill Lynch, Goldman Sachs, Morgan Stanley, mainly) to London and Paris – where they even recruited grandees from the French banking community The touchstone issue was: were investment banks to adopt the universal banking model – or to disappear?

A. An transitional fashion, financial groups

From the 1950s-1970s, like in the US in the 1980-1990s before the repeal of the Glass-Steagall act, a discreet move towards some forms of universal banking had taken shape: investment banks refinanced and godfathered new banks earmarked to “specialised credits” (housing and consuming credits, leasing, financing of real estate)56 because they constituted outlets for their oversized resources or their ability of getting access to the financial market. Thus emerged the business model of “financial groups” (groupes financiers)57. On another field, another fashion trend proposed to use commercial deposit banks and to transform them into “mixed banks”. Numerous reports followed this path in France when planning got a new start under the Gaullists from the

55 Hubert Bonin, Indosuez. L’autre grande banque d’affaires (1975-1987), Paris, Économica, 1987. Hubert Bonin, Suez. Du canal à la finance (1858-1987), Paris, Économica, 1987.56 Cetelem. De la 4CV à la vidéo. 1953-1983, ces trente années qui ont changé notre vie, Paris, Cetelem, 1983. Jacques de Fouchier, La banque et la vie, Paris, Odile Jacob, 1989. Catherine Malaval, Sofinco, 1951-2001. Les 50 années qui ont changé la France, Paris, Creapress, 2001.57 Hubert Bonin, Les groupes financiers français, Paris, collection Que sais-je?, Presses universitaires de France, 1995.

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mid-1960s: banks had to take in charge an increasing part of financing big firms instead of the State and the Treasury58, as a way for the State to liberalize its grips on the planning and restructuring the economy. Reforms59 in 1966-1968 allowed big banks to collect far more middle and long term resources, and to finance of broad middle and long term credits and to enlarge their participations in firms, so to comply with the needs of corporations and to godfather amalgamation, growth, and international developments of big firms. The State merged CNEP and BNCI into BNP-Banque nationale de Paris, reshuffled the teams at the head of State banks, and encouraged Suez and Paribas to take control of several banks in the various fields of deposit and commercial banking, investment banking, specialised credits, and equity investing) and it pushed the development of competitors, renewed Rothschild, Schneider (with Banque de l’union européenne) or Lazard (itself supervising affiliates in specialised credits and equity investing). This led to numerous studies which theorised on such groupes financiers. These financial groups were supposed to be the best intermediaries between reserves of cash and the needs of companies, and the best co-betweens to put impetus on mergers and acquisitions, thanks to their teams of financiers and engineers. And there too foreign “models” were called to legitimize the “fashion”, from Germany (where universal banking was somewhat practiced by big banks60) or Italiy (because of Mediobanca or else).

But such financial groups stirred discontent among leftists: their very success was perceived as a transfer of economic and financial power from the State (and its financial arms) to financiers and financial conglomerates (“grand capital”)61, and throughout the 1970s those latter were castigated by leftists experts (mainly economist François Morin)62 and parties – which led to the nationalization of Suez, Paribas, Rothschild and Banque de l’union européenne in 1982 by François Mitterrand’s leftist majority. The process to short-circuit the legal limitations to universal banking through the financial groups was halted, and the fashion of groupes financiers burst out, all the more because the public and then privatised groups splitted their various activities and refocused on merchant banking (Rothschild, Lazard), investment and

58 Laure Quennouëlle-Corre, La direction du Trésor, 1947-1967. L’État-banquier et la croissance, Paris, Publications du Comité pour l’histoire économique et financière de la France, 2000. CHEFF, Michel Debré, un réformateur aux finances, 1966-1968, Paris, Comité pour l’histoire économique et financière de la France, 2005. 59 Pierre Coupaye, Les banques françaises. Bilan d’une réforme, Paris, Notes & études documentaires, La Documentation française, n°4470-4771, 9 juin 1978.60 R. Deeg, “On the development of universal banking in Germany”, in Douglas Forsyth & Daniel Verdier (eds.), The Origins of National Financial Systems, London, Routledge, 2003.61 See Hubert Bonin, L’argent en France depuis 1880. Banquiers, financiers et épargnants dans la vie économique et politique, Paris, Masson, 1989.62 François Morin, La structure financière du capitalisme français, Paris, Calmann-Lévy, 1975. Alain Alcouffe, Christiane Alcouffe, Xavier Freixas, Michel Moreaux & François Morin, La banque et les groupes industriels à l’heure des nationalisations, Paris, Calmann-Lévy, 1977. Patrick Allard, Michel Beau, Bertrand Bellon, A.-M. Lévy & S. Liénart, Dictionnaire des groupes industriels et financiers, en France, Paris, Seuil, 1978. Bertrand Bellon, Le pouvoir financier et l’industrie en France, Paris, Seuil, 1980. Jean Baumier, La galaxie Paribas, Paris, Plon, 1988.

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corporate banking (Paribas – till its merger with BNP63 in 2000) or even got out of banking (Suez64).

B. Universal banking conglomerates as a fashion (from the mid-1980s)

The great crisis of the mid-1970s to the mid-1990s, the transition from the second to the third industrial revolution and the restructuring of the international division of labour enticed experts and the State to join the global fray of “deregulation” of the banking system, and to favour therefore the universal banking model: the Glass-Steagall act had become “out-fashioned”65. Even if French banks did not rush to London or New York to buy out merchant or investment banks (except little ones), they were themselves stirred by the new universal banking “fashion”, all the more because they were privatised between 1986 and 1999, and thus more dependant on analysts’ and markets’ mood (and business fashions)66 – and this followed another (ideological, but vastly shared) fashion, that of “moins d’État”, to alleviate State interventionism after its apex in the first half of the 1980s, and to “free” market forces and redefine (and support and finance) the strongholds of French economy at the expense of obsolete industries.

Pragmatist leftists (under minister of Finance and Prime Minister Pierre Bérégovoy67) first revolutionised the banking system through several laws in the mid-1980s – because the nationalisations did not seem to have provided the expected miraculous solutions –, and the successive rightist and leftists majorities completed the universal banking revolution68, as a leverage force to accelerate the modernisation of the French economy and to avoid the “rust belt syndrome”, that is losing momentum against the “forces of the market” which rubbed off huge parts of industry all over France (and western Europe). The universal banking model was conceived as a powerful machine to raise funds and to redistribute them alongside the optimal demands of firms, institutional investors, investment funds (and households), and to achieve the revolution of “transformation” of money which has been theorised by macroeconomists in the 1960s-1970s. The competitiveness of the Paris

63 Félix Torres, Banquiers d’avenir. Des comptoirs d’escompte à la naissance de BNP Paribas, Paris, Albin Michel, 2000. 64 Hubert Bonin, “Suez, de la finance aux services collectifs : analyse du redéploiement stratégique des années 1990”, in Marché(s) & hiérarchie(s), Toulouse, Presses de l’Université des sciences sociales de Toulouse 1, 2000, pp. 389-403.65 See R.S. Kroszner & R.G. Rajan, "Is the Glass-Steagall Act justified? A study of the US experience with universal banking before 1933", American Economic Review, 84, 4, 1994, pp. 810-832. Anthony Saunders & Ingo Walter (eds.), Universal Banking: Financial System Design Reconsidered, New York University Press, Salomon Center, Irwin, 1996. Ingo Walter (ed.), Deregulating Wall Street: Commercial Bank Penetration of the Corporate Securities Market, New York, John Wiley, 1985. 66 Dominique Lacoue-Labarthe, Les banques en France. Privatisation, restructuration, consolidation, Paris, Économica, 2001. Dominique Plihon, Les banques, nouveaux enjeux, nouvelles stratégies, Paris, La Documentation française, 1998. Christian de Boissieu (ed.), Banking In France, London, Routledge, 1990.67 Benjamin Ménard, “La modernisation financière”, in CHEFF (ed.), Pierre Bérégovoy. Une volonté de réforme au service de l’économie, 1984-1993, Paris, CHEFF, 1998, pp. 59-128.68 “L’industrie bancaire en France et dans l’Union européenne : structure et régulation”, in Frederic Mishkin, Christian Bordes, Pierre-Cyrille Hautcoeur & Dominique Laboue-Labarthe, Monnaie, banque et marchés financiers, Paris, Pearson Éducation, 7th edition, 2004, p. 341-382.

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financial international centre was also at stake to resist the Blitzkrieg of US banks69 (Goldman Sachs, Morgan Stanley, Merrill Lynch70) reaping larger and larger bits of merchant and corporate banking – or to Citicorp and GE targetting individual customers –, which raised concerns about the ability of “non universal banks” to say as global players71.

The universal banking fashion, deregulation72, and the unbundling of the State specialised banks led to a thorough rebuilding of banks, becoming universal banks, with the very symbol of BNP bidding out Paribas (over Société générale) in 1999-2000, and of Crédit agricole taking control of investment bank Indosuez, of several specialised credits firms (Sofinco and Finaref to create Crédit agricole Consumer Finance in 2009 for personal finance) and of deposit and commercial bank Crédit lyonnais. The whole banking community (Société générale, BNP-Paribas, Crédit agricole, Crédit mutuel-CIC, Banques populaires-Caisses d’épargne, and a very few small Crédit mutuel groups), had joined universal banking, besides merchant bankers Rothschild and Lazard.

But the recent and present universal banking fashion is quite different from the old trends, and what is called today a “universal bank” mixes a large array of activities. Retail banks added insurance to credit and savings management; that latter comprised now onwards wealth management or private banking; classical credit was extended to specialised credits (for housing and consuming). Commercial banks oriented towards business customership diversified themselves from corporate banking to investment banking (equity issuing and underwriting, proprietary trading) and merchant banking (advice and achievement of mergers & acquisitions), which represents for us the key diversification from commercial banking to universal banking. But they also moved from well-proven (but already risky) forex trading and equity secondary markets (classical “capital market”) towards broad “market banking” for their own account (proprietary trading) or for investment funds, with thus a large practice of capital market banking. Classically managing lines of assets for their own account or for the account of their customers (either institutional investors, like insurance companies; or companies’ treasurers; or wealthy individual investors; or clients of their mutual funds), banks set up an specialised industry to tackle what had become since the 1960s-1980s a far broader activity, “assets management” – and some of them even practice “custody” of equity for other banks as “custodians” with a range of specialised skills and rules.

69 Richard Sylla, “US Banks and Europe”, in Stefano Battilossi & Youssef Cassis (eds.), European Banks and the American Challenge. Competition and Cooperation in International Banking under Bretton Woods, Oxford, Oxford University Press, 2002, pp. 53-67.70 See Edwin Perkins, Wall Street to Main Street. Charles Merrill and Middle-Class Investors, Cambridge (Mas.), Cambridge University Press, 1999.71 See Esther Jeffers & Olivier Pastré, La TGBE : la très grande bagarre bancaire européenne, Paris, Économica, 2005.72 R. S. Kroszner, "The motivations behind banking reform: Why do lawmakers pursue deregulation?", Regulation, Washington, 2001, n°24, pp. 36-41.

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Confusion gathered momentum throughout the 1990s-2000s about what “universal banking” actually meant, in fact “banking supermarkets” (for individual customers), groups of “finance industry” (grappling the whole aspects of the market of every form of money, savings, exchanges), along with the formula “tout sous le même toit” or “one stop shopping”73, which had to prevent customers to insufflate competition between suppliers of finance and banking service. The manager of a firm can then find in his “house bank” (to re-use the word Haus-Bank which had prevailed in the German area) credit and insurance for his/her company, the management of its treasury, factoring, specialised equipment credits, mutual funds for the investment of employees’ funds (for retirement or for association to profits), structured finance for big investments, M&A for external growth, etc.; but he/she can also pick up personal or family services for his/her own assets, inheritance operations, family equity ownership into the firm, etc. Fashion trends can therefore be perceived when the “model of business model” lays with “conglomerates of finance or banking”, along with the pervasing model of conglomerates in industry – the “Jack Welch/GE model”74 –, as now onwards “universal banks” could develop every line of activity and tackle a broad portfolio of strategic activities. The universal banking fashion do not any more only covers a sole mix of deposit and commercial banking and of investment banking75: it has been extended to a broad portfolio, itself often duplicated in some regions abroad (mainly Europe for French banks).

C. Once more, universal banking fashion questioned: fashionable to question universal banking?

The recent crisis led to question such a universal banking fashion, and arguments appeared to denounce herding towards universal bankings models, because of a lack of relevant portfolios of skills and risks assessments processes. And even the repeal of the Glass-Steagall act was challenged by some economists76, expressing nostalgia towards a system which seemed to preserve banks from excessive risk-taking and from confusion of skills. “What of [one of] the two big structural questions that now dog industry regulators –

73 See the ad: “Divided into eight key business lines, the FBME Bank of Cyprus comprised:- Corporate banking- Personal banking- Card services- Credit facilities- Foreign exchange trading facilities- Trading finance- Trust service- e-banking.” [www.fbme.com]. Such a portfolio of activities does not actually express „universal banking”, but only diversified services to the two segments of markets, individuals and companies.74 Robert Slater, Jack Welch and the GE Way: Management Insights and Leadership Secrets of the Legendary CEO, New York, McGrawHill, 1999.75 Anthony Saunders & Ingo Walter (eds.), Universal Banking: Financial System Design Reconsidered, New York University, Salomon Center, 1996. Anthony Saunders & Ingo Walter, Universal Banking in the United States: What could We Gain? What Could we Lose?, New York, Oxford University Press, 1994. Charles Calomoris, “Universal banking in the United States: What could we gain? What could we lose ?”, Journal of Economic Literature, 33, n°3, 1995, p. 1357.76 Lord Lawson, “Capitalism needs a revived Glass-Steagall act”, in Financial Times, The Future of Capitalism. The Big Debate, 12 May 2009, pp. 22-23 [www.ft.com/capitalism].

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whether to separate out ‚utility’ retail banks from ‚casino’ investment banks? [...] Yet despite some talk about the need for a new Glass-Steagall act to separate retail and investment banking [...], the idea of breaking up institutions does not have great momentum.”77 The reshuffling of management fashions throughout the 1990s-2000s reconsidered the relevance of th conglomerate model in favour of leaner management and “unbundling” – questioning vertical integration and excessive diversification in favour of outsourcing and focusing on core activities78 – to reinstate competitiveness, reactivity, and also quality, because corpocracies tended to put brakes on the efficiency of the internal processes and on the accuracy of controls over operations – causing thus gaps in the quality of products and (in banks) of services.

About banks, the pertinence of the universal banking model has been questioned because of the crisis of investment banking departments within ex-deposit and commercial banks. But such a perception does not in fact reflect reality because generally speaking coporate and investment banking divisions fared well (even if they bear the burden of the slump). Confusion has reigned since 2006/2008 because what has been called “investment banking” was in fact “market banking”, capital market, including huge amounts of proprietary trading. Through the bullish years 2004-2007, “universalised” banks reaped huge profits from such market activities, included in investment banking because of the activity of “investing”. But this latter does not correspond to the classical and historical approach to investment banking, that is transforming resources into middle and long terms investments, either from outside (issuing and brokerage) or through the management of a portfolio of equity (portefeuille titres et participations, on the French banks’ balance sheet). Sure investment bankers ever practiced some kind of proprietary trading (portefeuille de placements) on the secondary market, to fuel liquidity to the equity of the firms they patronised, or to get short term profits; but such interventions on the financial market were more generally conducted for the sake of customers’ availabilities (service de la Bourse), and even at deposit banks for their wealthy clients; and one do not perceive that market banking had been a key activity of investment banks – besides forex activities.

We can thus pretend that the supposed recent fashion of universal banking on that field of market banking and proprietary trading was not the effect of a convergence towards universal banking, but the actual invention of a new type of banking, which was practiced either by commercial and deposit banks, and by investment banks; and the same for assets management, raised to the status of “specialised activity” from the mid-1960 and commonly (in France) only from the mid-1980s (if look at figures of amounts managed by assets management divisions and then affiliates). Both banking models were thus challenged because both types of banks had to jump into market banking and assets management to keep momentum and follow the fray – and to get access to lines of returns and profits. And such a move explained in fact the gap between new types of risks and the lagging array of controls of risks, as was noticed afterwards in many banks (with Société générale as a beacon, or Natixis and Calyon as scapegoats, because of their abyssal losses and their 77 The Economist. A Special Report on International Banking, 16 May 2009, p. 7.78 Société générale is merging in 2009 its assets management affiliate with that of Crédit agricole, like Barclays, which got rid of its assets management branch in June 2009.

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inability to tackle investment banking and market banking within their universal banking groups, coming from deposit banking institutions) by consultancies and internal scrutinies, because universal banking fashion drifted to fashions of “free for all banking” or of “bulimia”79 of activities, even if at arm’s length the management of control systems might be reconsidered. What was at stake in such a “fashion trend” was not “universal banking” by itself, but the addition of new activities to already universalised banks or to banks carrying out a strategic transformation into universal banks (savings banks, mutual banks, building banks, all over Europe). And the present crisis only raised concerns about the reliability of such “fashion trends” – all banks rushing to practice every piece of banking activity without any capital of skills to assume them and without enough capital as counterparts of their assets – and the very legitimacy of the recent outlines of the universal banking model. Strategies at once more at stake80, but banking (and business) historians are ever conscious that the “lessons from History” are not so well taken into consideration by bankers (nor businessmen)… because they do not enough take into account that the change of patterns ever requires a reshuffling of the portfolio of skill to be able to tackle a broader array of activities, which mutual and savings banks somewhat did not perceive in England, Germany, France or Spain in the 2000s.

Conclusion

One must not overestimate the scope of “fashions” about banking history. More than fashions perhaps they were “trends”, fuelled by an informal community of experts, business actors, along cognitive moods and collective self persuasion. Whatsoever the genuine contents and outlines of such business and bankings fashions, their very concrete results have ever been the building of “patterns” – either informal but assumed by the banking community, or formalised through rules of regulation. Fashions or patterns were therefore commonly admitted as obvious frameworks for the development of banking business in France through the various contemporary period considered. They have sometimes even played some role as “proactive” leverage to the general economy because they could have here and there contributed to emphasize its moves and thus were “procyclical” factors.

The foibles of such fashions/patterns lie with the economic and business environment of the action of bankers. The successive slumps, crashes and crisis had recurrently shaken so well recognized certitudes, and questioned the collective mindsets of the business community and of the public authorities in charge with the survey of the banking economy and industry. The legitimacy, recognition and perennity of fashions, trends or patterns have been directly dependant on the economic environment or middle/long term moves and structures. Less ephemere that fashions, because of their impact on the frameworks used by banks for their strategy, such bunches of theories and commonplace regulation patterns played a genuine role in shaping the paths of dependancy of which business history has recognized the effects on the life of enterprises.79 See Claire Blandin, “Les banques européennes tentés par la boulimie”, Le Monde, 6 février 1990.80 Hervé de Carmoy, Stratégie bancaire. Le refus de la dérive, Paris, PUF, 1987. Hervé de Carmoy, La banque du XXIe siècle, Paris, Odile Jacob, 1995.

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If we focus now on the fashion of “universal banking” itself, the convergence of “deposit and commercial banking” and of investment banking has been often praised by experts when the economy seemed to miss some dynamic banking impulse, through more durable and assertive credit, through the support to permanent funds of companies, or through a more intimate (and “embedded”) relationship between businessmen and bankers thanks to advice, engineering and finally “tailor-made” services. Every businessman could have dreamed of benefitting from a “personal” senior investment banker to extend its company more rapidly and strongly. The fashion of “mixed banking”, “regional banking” or, more recently, a confused form of “universal banking” has ever fostered fantastical conceptions when the economic and business community convinced itself that universal banking should be the key leverage to growth. Italy and France were both grounds for such a “competition” between the fashions of universal banking and of specialised banking, both “models” or patterns taking shape more or less strongly depending on the economic and political environment.

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