Not Mrs Thatcher's Big Bang

It is assumed by many that the Big Bang in the City of London in 1986 was instigated by Mrs Thatcher and  that it deregulated the banks. Some believe that it led directly to the financial crisis of 2007/8. None of these assumptions is true

It was the Labour government ( that left office in 1979) that referred certain City practices to the Restrictive Practices Court. These practices were

1. Stockbrohers could sell or buy shares and bonds to and from the public but at fixed rates of commission and were not allowed to make markets

2. Stockjobbers could make markets in shares and bonds but were not allowed to deal with the public

3.  Brokers and jobbers were not allowed to take in foreign and other capital

When the Tories came into government in 1979 they could hardly - whatever their view on the substance of the matter - withdraw this case at a time when they were attacking restrictive practices in trade unions.

There was then a period of consultation. This was not just reactionaries resisting change, Many believed that there was a lot to be said for the traditional system, including the Bank of England which had the task of raising large sums for governments and of managing the resulting market in government debt. But eventually the Bank and the other parties agreed.. These practices were abolished and the result was much the same as it would have been if the case had gone to the court and the City had lost. And the changes were not initiated by Mrs Thatcher

Note that although the word " deregulation" was ( and is)  used of this change it was not concerned with the supervision of the behaviour of financial institutions.  The banks were not involved in the practices which were abolished.  Banks were throughout regulated by the Bank of England  until regulation was switched to the Financial Services Authority by Gordon Brown, with unfortunate consequences  in 2007/8 -  see my entry on The Financial Crisis  - Solved  in this blog

Nevertheless, in the government bill which was then brought forward to establish the new systems, there was a certain amount of new regulation, and over Mrs Thatcher's period of office the rules governing the behaviour of financial institutions were vastly increased. These rules - which  were further elaborated later - can now  be regarded as cumbersome and  have by some  been adversely compared with the more gentlemanly policing of the past  (the eyebrows of the Governor of the Bank of England, raised to express doubts).  Now we are ruled by rows of computers containing vast legal documents. But the change was inevitable, first  because of the growth in suspicion of self regulation, and secondly because of the changes in the character of financial institutions after Big Bang.

The removal of the three practices  listed above  led to the creation in London of large general banks providing many services as a result of the acquisition of brokers and jobbers by banks from many countries. These banks enabled London to maintain and improve  its position in the world as a financial centre, paralleled only by New York, and to the great benefit of the United Kingdom.

  

Of course there were other influences aside from Big Bang - globalisation, the IT revolution, the development of complex derivative instruments.   And if the new financial world is less gentlemanly than in the past that is true of many aspects of life today, including the fact that it is probably politically incorrect to say "gentlemanly"