Unsettled Account: The Evolution of Banking in the Industrialized World since 1800

Unsettled Account: The Evolution of Banking in the Industrialized World since 1800

Unsettled Account: The Evolution of Banking in the Industrialized World since 1800

Unsettled Account: The Evolution of Banking in the Industrialized World since 1800


Commercial banks are among the oldest and most familiar financial institutions. When they work well, we hardly notice; when they do not, we rail against them. What are the historical forces that have shaped the modern banking system? In Unsettled Account, Richard Grossman takes the first truly comparative look at the development of commercial banking systems over the past two centuries in Western Europe, the United States, Canada, Japan, and Australia. Grossman focuses on four major elements that have contributed to banking evolution: crises, bailouts, mergers, and regulations. He explores where banking crises come from and why certain banking systems are more resistant to crises than others, how governments and financial systems respond to crises, why merger movements suddenly take off, and what motivates governments to regulate banks.

Grossman reveals that many of the same components underlying the history of banking evolution are at work today. The recent subprime mortgage crisis had its origins, like many earlier banking crises, in a boom-bust economic cycle. Grossman finds that important historical elements are also at play in modern bailouts, merger movements, and regulatory reforms.

Unsettled Account is a fascinating and informative must-read for anyone who wants to understand how the modern commercial banking system came to be, where it is headed, and how its development will affect global economic growth.


I have perhaps gone a little more into details than is customary
on these occasions, but the times have been unusually
interesting …

—Governor H. L. Holland,
Speech to Proprietors of the Bank of England
(shortly after the Overend, Gurney crisis),
September 13, 1866

The worldwide financial crisis that erupted during the second half of 2008 is among the worst the industrialized world has ever known. Previously solid financial institutions collapsed, securities markets crashed, and even countries went to the brink of bankruptcy—and beyond. At the time of this writing, commentators continue to speculate on how long the crisis will last, when the accompanying recession—or is it something worse?—will end, and what the financial system will look like when the dust has settled. At the same time, politicians struggle to devise rescue plans and to reformulate regulations with the three-fold goal of mitigating the current crisis, preventing a recurrence, and satisfying their constituents.

According to Mark Twain, “History doesn't repeat itself, but it does rhyme.” This certainly holds true with respect to recent financial events. the causes of the current crisis bear more than a passing resemblance to those responsible for innumerable crises during the past two centuries. the fallout from the crisis is, in many ways, similar to that of its predecessors. and the dilemmas facing today's policy makers are very much like those encountered by earlier generations of policy makers in the aftermath of financial crises. Differences abound, of course, but the parallels make seeking out the rhymes especially tempting.

This book focuses on the history of one part of the financial system, banks, with a particular emphasis on incorporated commercial banks, institutions that make loans financed by the issue of demand deposits or currency. the commercial bank, in its earliest form, was one of the first types of financial institutions to develop and is, in its present form, the one with which consumers are the most familiar. Commercial banks have taken a leading role in financing commerce and industry from the beginnings of industrialization until the present day.

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