The French Banking Structure before World War I

Abstract

From the so-called "Belle epoque" to the Great Depression of 1929, the industrialization of heavy and chemical industries progressed so rapidly that the periode is usually characterized as one of great demand for credit and capital; the "Second Industrial Revolution" is the name attributed to these decades. As for the French Commercial Banks (grandes banques de depots), what kind of reactions did they have to this transition of the business cycle, especially concerning the growth of demand for credit and capital? We can see that the Credit Lyonnais, one of the biggest commercial banks, suddenly changed its policy in 1882; that is, it abandoned its holdings in industries (characterized mainly by participation) and increased the amount of discount, which was sustained by the growth of slight deposits. The Societe Generale, on the other hand, followed in the footsteps of the Credit Lyonnais by about ten years. This change should be considered as one of the greatest events in French banking history; this transformation taken by the French commercial banks forced these banks to enlarge their branch networks nationally and to construct a new flow of credit and capital; short term funds were spread mainly by discount and long term funds distributed normally by security investments. Local banks, thrown into competition with great banks, were forced to modify their business policy in order to survive. In short, French banks responded to the growth of demand for credit and capital by increasing the supply of short term credit. As far as clients of these great commercial banks were concerned, French enterprises were able to procure liquidity at cheap prices, because the new flow of funds, thus constructed, has contributed to lower the interest rate for short term credit. On the other hand, other smaller businesses suffered seriously from a lack of long term funds, which were very important for more rapid growth, because the new flow could hardly distribute them to those who were incapable of issuing their own bonds in markets.