Carnevali, Francesca
(1997)
British and Italian banks and small firms: A study of the Midlands and Piedmont 1945-1973.
PhD thesis, London School of Economics and Political Science.
Abstract
The central contention of this thesis is that, in the post 1945 period, the British banking system limited the availability of finance to small firms. The concentrated and centralised nature of British banking induced financial repression as banks rationed credit to small firms, not purely in terms of interest rates, but also, and indeed mainly, in terms of supply. In a situation where banks enjoyed monopoly power over small and new firms, banks were unwilling to enter transactions with them as the cost of these transactions was high in relation to the returns, due to the centralised organisational structure of the banks. In the period previous to the one studied here, concentration had eliminated provincial banks, and the cartelized nature of British banking prevented the emergence of other local banks in the post-1945 period. These local banks would have had structures more suited to the reduction of information asymmetries, and therefore an interest in lending to small firms. The existence of a credit gap was exacerbated by credit restrictions devised by the British government in the post war period to control inflation and the balance of payments. These caused British banks to reduce the finance available to small firms. The argument presented here is that small firms in Britain suffered from credit restrictions more than they would have done if the banking system had been segmented, with other provincial banks available closer to local markets. The importance of local banks for the survival and development of small firms is illustrated by a comparison with the more differentiated Italian banking structure, in particular, the activity of two Piedmontese banks. In the chapters dedicated to Italian local banks, particular emphasis is given to their involvement with the regional economy and to the networks within the region that facilitate the exchange of both formal and informal information between small firms and banks, thus reducing information asymmetries and facilitating transactions.
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