Proposal preview

The commercial and industrial activities of central banks, 1914-2014

This panel will examine some hitherto neglected aspects of the evolution of central banking from a historical and global perspective. In particular, it will consider the private sector business of central banks from the First World War to the present day. Orthodox theory excludes the possibility that central banks engage in market and industrial activities and hold equity investment. In contrast to received narrative, however, historical evidence shows that central banks have been heavily involved in private sector commercial activities and other aspects of the economy in ways that are often ignored. Despite their change in legal status from private, joint-stock profit banks to state-owned institutions from the 1930s, and despite gaining independence from governments after the 1980s, this involvement seems a historical regularity which cannot be dismissed as sui generis.
Evidence suggests that after crises this involvement grew in importance. As a consequence of economic and financial crises, monetary orthodoxy was often replaced by experiments in industrial policy-making under political pressure, but also because of market failures and the inability of commercial banks to finance certain sectors of the economy. After the First World War and after 1929, European central banks – from the Bank of Italy to Bank of England, from the Banque de France to the Reichsbank – accumulated substantial commercial portfolios, becoming leading industrial players and spearheading forms of state intervention in industry. After 1945, many central banks continued to provide industrial finance, while in the developing countries they proved instrumental in the definition of long-term economic and industrial policies, providing, in many cases, personnel and managing directors to state-owned enterprises. Again, after 2008, in a search for yield, many central banks – including the Bank of Japan the Netherlands National Bank, the ECB, the Swiss National Bank and the People’s Bank of China – have amassed substantial equity investments in different ways.
Was intervention an aberration or the norm? In what circumstances did central banks engage in commercial and industrial activities? In providing industrial finance did they simply compete with commercial banks or did they seek to deal with market failures? In what ways was the search for yield correlated to government budget constraints and deflation? How does the experience of central banks in developed economies contrast with newer central banks? We will issue a call for papers and host a pre-conference to extend participation as widely as possible.

Participants will include in alphabetical order:
Valerio Cerretano (UK)
Lilia Costabile (Italy)
Gerald Epstein (USA)
Olivier Feiertag (France)
Andrew Filardo (Switzerland)
Catherine Schenk (UK)
Masato Shizume (Japan)
Pierre Siklos (Canada)
Hiroyuki Sugamoto (Japan)

Organizer(s)

  • Catherine Schenk University of Glasgow catherine.schenk@glasgow.ac.uk UK
  • Valerio Cerretano University of Glasgow valerio.cerretano@glasgow.ac.uk UK

Session members

  • Valerio Cerretano, University of Glasgow
  • Catherine Schenk, University of Glasgow
  • Gerald Epstein, UMass Amherst
  • Olivier Feiertag, Universite' de Rouen
  • Andrew Filardo, BIS
  • Pierre L Siklos, Wilfrid Laurier University
  • Masato Shizume, Waseda University
  • Hiroyuki Sugamoto, Waseda University
  • Lilia Costabile, University of Naples, Federico II

Discussant(s)

  • Valerio Cerretano University of Glasgow valerio.cerretano@glasgow.ac.uk
  • Catherine Schenk University of Oxford Catherine. schenk@ history.ox.ac.uk

This panel has Call for Papers open.
If you are interested in participating, please contact the panel organizer(s) to submit a proposal.

  • Catherine Schenk, University of Glasgow, catherine.schenk@glasgow.ac.uk, UK
  • Valerio Cerretano, University of Glasgow, valerio.cerretano@glasgow.ac.uk, UK

Papers

Panel abstract

After a long period of neglect, the theme of the involvement of central banks with industry and development has lately received renewed attention from scholars and practitioners alike, as central banks, in the aftermath of the 2007 global economic crisis, came once again to be involved with broader government plans for the purchase of company assets (i.e. Chrysler) or with the formulation of measures of ‘unconventional’ monetary policy which have swelled central banks’ balance sheets significantly. To what extent is this involvement an aberration or the norm in the evolution of central banks and central banking? This panel will attempt this fundamental question in the belief that there is an urgent need for a more systematic and global long-term analysis of how central banks have accumulated industrial assets and influenced development, as well as the allocation of long-term finance, in the Western World since 1918.

1st half

Federal Reserve Policy for Industrial Policy

Gerald Epstein

The Great Financial Crisis of 2007-2008 produced unorthodox responses from the world's major central banks, especially the Federal Reserve, the Bank of England and (eventually) the European Central Bank. These were necessary to stave off a meltdown of the world's financial system and to help revive the world's battered economies. As these central banks now announce their intentions to return to "business as usual", that is, orthodox monetary targets (inflation) and tools (short term interest rates), it is a good time to question this "business as usual" conventional label and approach. In fact, the recent central bank experimentation reminds us that for many decades, central banks have responded to major structural challenges by implementing highly interventionist credit and balance sheet policies that greatly differ from the so-called "business as usual" inflation-targeting orthodoxy. Though some scholars have reminded us of this history, little understood, however, are the critical roles of central...

The Great Financial Crisis of 2007-2008 produced unorthodox responses from the world's major central banks, especially the Federal Reserve, the Bank of England and (eventually) the European Central Bank. These were necessary to stave off a meltdown of the world's financial system and to help revive the world's battered economies. As these central banks now announce their intentions to return to "business as usual", that is, orthodox monetary targets (inflation) and tools (short term interest rates), it is a good time to question this "business as usual" conventional label and approach. In fact, the recent central bank experimentation reminds us that for many decades, central banks have responded to major structural challenges by implementing highly interventionist credit and balance sheet policies that greatly differ from the so-called "business as usual" inflation-targeting orthodoxy. Though some scholars have reminded us of this history, little understood, however, are the critical roles of central bank accountability (as opposed to socalled Central Bank "independence), and financial regulation in the successful practice of these currently unorthodox, but fairly common operations. As the world's economies continue to face major structural challenges such as climate change, automation, and instability inducing financial globalization, central banks will surely be called upon again to pursue more effective policies. Grappling with the joint challenges of credit/balance sheet policy, central bank accountability and financial regulation requires much more analytical, historical and empirical attention than it has received thus far.

The Central Bank Balance Sheet As A Tool Beyond Monetary Policy WEHC 2018

Andrew Filardo and Pierre Siklos

Central banking and economic development in West Africa (1973-1983)

Olivier Freiertag

Central banking and price stability in Ricardo

Lilia Costabile

2nd half

The industrial intervention of central banks: Britain, Italy and France, 1918-1973

Valerio Cerretano

Industrial policy, equity finance and the Bank of Japan in a historical perspective

Masato Shizume

The Bank of England, industrial intervention and the Vickers-Armstrongs merger in the inter-war period

Hiroyuki Sugamoto

The purpose of this paper is to investigate whether the Bank of England in the interwar period had a solid commitment to industrial intervention. Although This topic has been argued for more than 50 years, previous studies did not reach a common understanding about the aim of the intervention to industry. The scope of activity of British financial institutions, especially those in the City of London, have attracted a great deal of attention because of their distinguished position in the international financial market. However, the relationship between the financial companies in the City of London and their domestic industrial customers is a controversial issue in the British history. Among the financial institutions, the Bank of England is the most controversial figure in the interwar period. The Bank took the initiative in returning a gold standard, and the decision was interpreted as the Bank’s adherence to international financial stability rather than internal...

The purpose of this paper is to investigate whether the Bank of England in the interwar period had a solid commitment to industrial intervention. Although This topic has been argued for more than 50 years, previous studies did not reach a common understanding about the aim of the intervention to industry. The scope of activity of British financial institutions, especially those in the City of London, have attracted a great deal of attention because of their distinguished position in the international financial market. However, the relationship between the financial companies in the City of London and their domestic industrial customers is a controversial issue in the British history. Among the financial institutions, the Bank of England is the most controversial figure in the interwar period. The Bank took the initiative in returning a gold standard, and the decision was interpreted as the Bank’s adherence to international financial stability rather than internal stability. However, the Bank of England launched out on intervention to British declining industry as a result of its private customer’s financial troubles. This episode indicates that the Bank still had a partial function of a commercial bank and it fulfilled the function in some operations whilst it conducted monetary policies such as Bank Rate policy. Although there is a great deal of rhetoric on the policies of the Bank of England, previous studies have not performed enough analyses of the relationship between industrial intervention and the broader schemes of policies of the Bank. Therefore, this research will seek to find out to what extent the executive officers of the Bank of England got involved in industrial intervention on their own initiative. Along with it, I will identify the relationship between industrial intervention and other policies conducted by the Bank of England. For this purpose, I will use some new records of not only the Bank itself but also of industrial firms, governments and commercial and merchant banks involved in industrial reorganisation. My inquiry into some records of the industrial intervention indicates that the Bank influenced financial institutions and some industrialists to collaborate with the Bank in reconstructing British industry. The project also shows how the industrial firms got involved in the industrial reconstruction spearheaded by the Bank. Among them, I will focus on the case of Armstrong Whitworth and Vickers in order to evaluate industrialists’ attitude towards this movement.