In July 1983 an agreement was reached between the British government and the London Stock Exchange that was to transform the London securities market in October 1986. The result was a revolution that extended all the way from the design of the market to those permitted access to the governance of those who traded. Given the speed of change, it was termed ‘Big Bang’ by contemporaries. As the scale of the transformation became known, politicians were quick to claim credit for what had been achieved. Subsequently, Big Bang has been regarded as one of the crowning achievements of the Conservative government led by Mrs Thatcher, providing the foundation for the City of London's re-emergence as the leading international financial centre. However, only now is evidence emerging of the intentions of those involved at the time rather than as expressed in the light of hindsight, which casts doubt on what they were seeking to achieve, whether viewed from the perspective of either the politicians or those in charge of the Stock Exchange. Instead, the longer-term pressure for change in the London securities market, the chain reaction caused by abolition of fixed-commission charges, and the proactive role of the Bank of England appear to be of greater significance. What an examination of the process leading up to Big Bang in 1986 reveals is the complexity of political decision involving the financial sector and the danger of unforeseen consequences. One small change can create a tipping point if the result is to remove an essential element within a complex system.

This article analyses a set of financial advisory missions led primarily by Robert Triffin of the US Federal Reserve Board to Latin American countries during the 1940s. These missions developed a new approach to international ‘money doctoring’ that rejected both the content and style of the better-known US financial advisory missions led by Edwin Kemmerer during the 1920s. The missions were driven by a number of motivations that emerged from the politics of the New Deal and the Good Neighbour policy. The episode highlights the diversity of international money doctoring experiences, the importance of the financial dimensions of the Good Neighbour policy, and the wider geographical impact of a new kind of financial internationalism that emerged in US foreign policy in the wake of the 1930s.

Tontines and life annuities both insure against longevity risk by guaranteeing (pension) income for life. The optimal choice between these two mortality-contingent claims depends on personal preferences for consumption and risk. And, while pure tontines are unavailable in the twenty-first century, the first longevity-contingent claim (and debt) issued by the English government in the late seventeenth century offered a choice between the two. This article analyzes financial and economic aspects of King William's 1693 tontine that have not received attention in the literature. In particular, it compares the stochastic present value (SPV) of the tontine vs the life annuity and discusses characteristics of investors who selected one versus the other. Finally, the article examines the issue of whether high reported tontine survival rates should be attributed to anti-selection or fraud. In sum, this article is an empirical examination of annuitization decisions made by actual investors in the late seventeenth century.

This paper explores the extent and nature of ‘Penny bank’ saving in Glasgow during the second half of the nineteenth century. Penny banks existed as part of the network of philanthropic organisations in the quintessential industrial city, and they were frequented by the poorer sections of the working class – those for whom saving represented a difficult and occasionally sacrificial effort. They were a voluntary and individualist decision to engage in saving, in contrast to the mutual organisations, such as friendly and industrial welfare societies which also proliferated in this period. The enormous success of penny banks in Glasgow, and throughout the United Kingdom, is powerful evidence that a great deal of saving was happening, even amongst the poorest sections of society. Careful examination of the activities of two penny banks suggests that they operated both as short-term liquidity stores and as vehicles for longer-term and larger-amount savings.

This article argues that the British financial system in the era prior to World War I provides modern policymakers with a successful model of how to stabilize the banking system. This model had two components: incentives were structured to ensure that all banks that originated or traded assets on the money market sought only to trade in high-quality assets; and macro-prudential regulation promoted the segregation of money markets from capital markets, monitored the growth of money market credit, and restricted trade on the money market in assets issued by entities and sectors whose money market liabilities were growing so fast that the most reasonable explanation was that the money market was being used to finance longer-term investment. These facts indicate that policymakers can successfully stabilize the banking system through a combination of structural reform and regulation of the growth of credit.

The Second Bank of the United States (1816–36) faced a potential trade-off between the private profits it was expected to produce for shareholders and the ‘free’ yet costly fiscal services it was mandated to provide to the Federal government during an era of westward expansion and primitive transportation networks. This article shows that the bank's large-scale dealings in domestic and foreign exchange transformed this potential trade-off into a positive synergy between the bank's private and public obligations. The bank was financially successful because it found a market niche – the provision of interregional and international payment services – whose exploitation had the added virtue of reducing the cost to the bank of being the Treasury's fiscal agent.

In the period from 1877 until the outbreak of World War I, Sweden, Denmark and Norway constituted a currency area – the Scandinavian Monetary Union (SMU). They shared the same unit of account, the gold krone. Both full-bodied gold coins and token coins of the three countries served as legal tender and circulated freely within the union. Initially set up to preserve the traditional circulation of neighbouring coins in the border regions, the central bank cooperation was extended to a mutual settlement mechanism (1885) and later reciprocal acceptance of notes at par (1901). A desire for economic integration was present under the surface of this practical approach, mirroring the predominant liberal worldview of the 1870s. For instance, the Norwegian government saw a common coinage as an instrument for ‘knitting together the three nations to a single commercial territory’. In the parliamentary debate on Norwegian entry into the union a supporter argued that ‘the real objective of unity in coin had to be to bring the countries closer together’. Thus, from the outset, the SMU was a combination of practical arrangements and lofty ambitions.

The transition of the US money supply from the mixture of paper bills of credit, certificates and foreign coins that circulated at various exchange rates with the British pound sterling during the colonial period to the unified dollar standard of the early national period was rapid and had far-reaching consequences. This article documents the transition and highlights the importance of this standardisation in bringing order to the nation's finances and in facilitating the accumulation and intermediation of capital. It describes how the struggle of the colonies to maintain viable substitutes for hard money set the stage for the financial leaders of the Federalist period to settle upon the dollar, attach it to a convertible metallic base, and create a national bank that issued notes denominated in the new monetary unit. It also presents recently constructed estimates of the US money stock for 1790–1820 and relates them to measures of the nation's early modernisation.

The recession of 1937–8 is often cited as illustrating the dangers of withdrawing fiscal and monetary stimulus too early in a weak recovery. Yet our understanding of this severe downturn is incomplete: existing studies find that changes in fiscal policy were small in comparison to the magnitude of the downturn and that higher reserve requirements were not binding on banks. This article focuses on a neglected change in monetary policy, the sterilization of gold inflows during 1937, and finds that it exerted a powerful contractionary force during this period. The transmission of this monetary shock to the real economy appears to have worked through lower asset (equity) prices and higher interest rates.

The riddle of why the Maria Theresa dollar issued by Vienna continued in circulation for over one and a half centuries in Africa and the Middle East has never been fully explained. Contrary to common belief, the popularity of this particular silver dollar did not depend on its intrinsic content. The Maria Theresa dollar complemented other monies so well that no authority could replace it with its own currency. The circuit of the coin functioned as a buffering interface between local markets, which collected products like coffee through fractional currencies, and the international market, in which the products were traded in terms of a standard currency like sterling. The complementary role of the Maria Theresa dollar resulted from a self-organising process by markets themselves in order to stabilise transactions.

There are a multitude of explanations for the depth and length of the Great Depression, of which uncertainty has been proposed as one possible explanation (Romer 1990). The 1930s not only saw extreme declines in output and prices, but stock volatility was also at record highs (Schwert 1989). This high stock volatility was generated by a series of discontinuous jumps as news about uncertainty arrived regularly during the 1930s, as shown by applying the Barndorff-Nielsen and Shephard (2006) test for jumps in a time-series. To provide a more historical narrative for these jumps, I outline some key events during the Great Depression that generated a sense of uncertainty for businesses and households which occurred contemporaneously to these extreme jumps. While much of the literature has placed Roosevelt's New Deal as a primary source of uncertainty, I do not find much evidence for this hypothesis, and instead find that banking crises, the breakdown of the gold standard, popular unrest and uncertainty related to the brewing war in Europe were primarily responsible for both jumps in returns and the uncertainty of the 1930s.

This article argues that the promotion boom which occurred in the railway industry during the mid 1840s was amplified by the issue of derivative-like assets, which let investors take highly leveraged positions in the shares of new railway companies. The partially paid shares which the new railway companies issued allowed investors to obtain exposure to an asset by paying only a small initial deposit. The consequence of this arrangement was that investor returns were substantially amplified, and many schemes could be financed simultaneously. However, when investors were required to make further payments it put a negative downward pressure on prices.

The British monetary authorities have traditionally focused on broader monetary aggregates than their counterparts elsewhere. The reasons include: the willingness of UK banks to allow customers to make payments by drawing on time deposits, the particularities of the UK approach to managing the national debt and the foreign exchange reserves, and the flow-of-funds system of national accounts developed after World War II. This article outlines these reasons, and explores the implications for the UK's often fractious relationship with the International Monetary Fund during the 1950s and 1960s. It explains why IMF conditionality on loans to the UK focused on broad aggregates.

This article undertakes a comparative study of the effects of three wars upon the French stock market. Periods of war are highly turbulent financial times and trigger multiple factors to act upon stock prices. The article presents evidence suggesting that stock price behaviour is influenced by the specific way each war is financed. Financed solely by regular long-term debt, the Franco-Prussian War exhibited stock prices that only reflected real activity. On the other hand, both world wars were partially financed by monetary creation but differed with regard to the extent of financial repression. In the case of World War II, monetary creation within a closed repressed economy led to a paradoxical, short-lived increase in stock prices. The article also examines how war affected the characteristics of the market. The Franco-Prussian War caused a durable high interest rate; World War I smoothed out most of the public services firms and increased volatility; whilst World War II affected the components of the stock market. Overall, mainly due to market values being destroyed during the world wars, the importance of the stock market in the economy decreased.

The structures of the banking systems in early nineteenth-century England and later nineteenth-century America were quite similar. In each the multitude of independent country or interior bankers maintained correspondent accounts with bankers in the metropolis, London and New York respectively, to hold reserves and to clear and settle financial instruments used in intercity financial transactions. In spite of such similarities in structure, the performances of the two systems were, however, rather different. Although panics were frequent and their extent widespread in late eighteenth- and early nineteenth-century England involving numerous bank failures, there was never a nationwide paralysis of the payments system such as had become a regular event in late nineteenth-century America. This was due to the Bank of England's functioning as a de facto lender of last resort even though such a role was not explicitly recognized or acknowledged until decades later.

In the nineteenth century, British banking had a complete spectrum of shareholder liability regimes, ranging from pure limited to unlimited liability. Although the debate surrounding the US experience with double liability in banking is well documented, we know relatively little about the British experience of and debate about shareholder liability regimes in banking. Consequently, this article traces the development of views on shareholder liability regimes in nineteenth-century British banking. One of the main findings is that the chief argument for limited liability in British banking was based upon the perceived weaknesses of unlimited liability. In addition, it appears that much of the debate concentrated on the depositor-assuring viability of alternatives to unlimited liability.

We examine the international propagation of the financial crisis of 2008, and compare it with that of the crisis of 1931. Both crises featured a flight to liquidity and safety. We argue that the collateral squeeze in the United States, which became intense after the failure of Lehman Brothers, was an important propagator in 2008; in 1931 the acceptances granted by London banks to central European borrowers propagated the crisis to the UK. In both crises, central banks' reserve management actions contributed to the liquidity crisis. And in both crises, the behaviour of creditors towards debtors, and the valuation of assets by creditors, were very important. However, there was a key difference between the two crises in the range and nature of assets that were regarded as liquid and safe: central banks in 2008, with no gold standard constraint, could liquefy illiquid assets on a much greater scale.

In the discussion of our contemporary economic disease, the Great Depression analogy refuses to go away. Almost every policy-maker referred to conditions that had ‘not been seen since the Great Depression’, even before the failure of Lehman. Some even went further – the Deputy Governor of the Bank of England notably called the crisis the worst ‘financial crisis in human history’. In its April 2009 World Economic Outlook, the IMF looked explicitly at the analogy not only in the collapse of financial confidence, but also in the rapid decline of trade and industrial activity across the world. In general, history rather than economic theory seems to offer a guide in interpreting wildly surprising and inherently unpredictable events. Some observers, notably Paul Krugman, have concluded that a Dark Age of macroeconomics has set in.

The international banking crisis that began in 2007 has brought the relationship between international banking activities and financial crises to the forefront. The growing reliance on foreign interbank funding by domestic banks has been recognized as a crucial factor in explaining the banking and sovereign debt crisis currently affecting several peripheral European countries. This article shows that the link between financial crisis and international interbank lending is not a new phenomenon; a similar trend can be observed in the Mexican banking sector during the run-up to its 1982 debt crisis. I explore the international activities of Mexican commercial banks in the years preceding the country's default and demonstrate that they became involved in international lending which was funded largely through heavy short-term interbank foreign borrowing. I provide new archival evidence which shows that in intermediating foreign finance with local public and private borrowers, Mexican banks incurred maturity, interest rate and currency mismatches and dangerously increased their risk position. This article provides insights for understanding the Mexican debt crisis as closely intertwined with problems in the domestic banking sector, which were, in turn, linked to its involvement in the international financial system.