A way into the question of the political, and not economic, causes of banking is by looking at other banking regimes across the world and in time. Today the modern, universal form of banking, underpinned by international prudential standards is unremarkable – indeed seems natural. But this is a recent development, roughly dating from the 1970s. Banking looked very different beforehand even in jurisdictions which might, on the face of it, seem stable and long-standing such as the UK. Even a quick glance at the City of London from the end of the Second World War to the first efforts to reform it (1970) serves to shake up our preconceived notions of what is a “bank”.

British finance was very strange in the years between 1945 and 1970. The City was a divided, bifurcated, restricted entity which operated along semi-planned lines. This was not due so much to Labour's move towards socialism in 1945 but due to the characteristics of British finance and the way it had grown up and responded to Britain's changing role in the world over the first half of the twentieth century. To understand the City in this period we should focus on three things: the nationalization of the Bank of England; the growth of the offshore market; and the domestic cartelized banking system.

The nationalization of the Bank of England

The nationalization of the Bank of England was a significant step in the evolution of banking regulation in the UK. It marked the beginning of overt political control over the banking sector. This would eventually end up in statutory regulation (see Chapter 5). For all that this control remained indirect – inasmuch as government interests were channelled to the City through the Bank of England – and was largely a formalization of the Bank's practice that had built up between the wars, the Bank's nationalization removed its awkward, hybrid status as a public‒private institution. There would no more be any doubt who the Bank was working for, or for what ends. Nonetheless, the reasons for the Bank's nationalization, why it took the form it did, and what implications this had for the City are worth exploring.