What Are The Similarities Between The Development Of The Banking System In Hoare's Bank And Joint Stock Companies?

782 Words 4 Pages
In comparing Private borrowing during the financial revolution: Hoare’s Bank and its customers, 1702 – 24 by Temin and Voth with Joint Stock Companies by Carlos, the similarities between the development of the banking system and joint stock companies and their interconnectedness are evident. The early English banking system developed from goldsmiths and merchants. Small partnerships consisting of a few insiders were then formed and resembled modern deposit banks. The banks began to realize that they could loan deposits that they accumulated to earn a return. As noted by Temin and Voth, the largest source of financial revolution in the banking sector was the British government’s ability to tax effectively. The supply of tax revenue allowed …show more content…
For banks, the government intervened by controlling the usury rate and, therefore, limiting the effective interest rate that banks could charge. This slowed the development of the banking sector in England because the usury rate served as a ceiling on interest rates. In the case of joint stock companies, while there was little policing of shares by parliament, the government played a role because they controlled which companies would be issued charters. This reduced bankruptcy risk as internal competition was controlled and companies could operate as …show more content…
Though the authors believed that the banking sector did not play a huge role in laying the foundations for the industrial revolution, there were still notable contributions when the two institutions are combined. Combined, the two institutions laid the foundations for the industrial revolution because they aided in distributing the risk of investing and conducting business across the economy. Joint stock companies allowed investors to invest in various shares of companies, thus allowing for an individual to minimize risk through diversification. This led to an increase in investors’ willingness to take partial ownership in companies, which consequently resulted in the growth of capital available for companies demanding funds. By providing liquidity via a stock market exchange and providing loans to individuals and the government, banks were able to spread out the overall risk in the market. Overall, this made it less risky to own shares of companies and annuities of the government. This was fundamental leading up to the industrial revolution because it allowed banks and investors alike to hold very liquid assets (assets that could be traded or turned into cash quickly: cash, government bonds, and stocks). Companies during the revolution required long-term capital investments (liquidity) in order to build and scale their operations. Investors were able to

Related Documents