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Papers in Evolutionary Economic Geography

#18.33

An Evolutionary Perspective on the British Banking Crisis

Neill Marshall and Stuart Dawley and Andy Pike and Jane

Pollard and Mike Coombes

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AnEvolutionaryPerspectiveontheBritishBankingCrisis

Abstract

Developinganevolutionaryperspectivetowardsthechanginganatomyofthebankingsectorrevealsthe enduring tensions and contradictions between spatial centralisation and the possibilities fordecentralisationbefore,duringandaftertheBritishbankingcrisis.Theshiftfrombankingboomtocrisisin2007isconceptualisedasasignificantandon-goingmomentinthelong-termevolutionofthehistorical institutional-spatial dominanceof Londonover other city-regions in Britain. The analysisdemonstrates the importanceof the institutional and geographical legacies of theBritishnationalpoliticaleconomyandvariegationofcapitalismestablishedinthelaternineteenthandearlytwentiethcenturies in shaping contemporary geographical outcomes. Regulatory changes combined withfinancialinnovationinthelatteryearsofthetwentiethcenturytocreateanopportunityforEnglishregional and Scottish banks excluded from previous institutional-spatial centralisation to expandexcessively and consequently several failed in the banking crisis. The paper considers the futuretrajectory of institutional-spatial centralisation in the banking sector amidst the continued spatialrestructuringofthebankingcrisis, involvingare-drawingoforganisationalboundaries,overlappinginstitutionalandtechnologicalchangesandunprecedenteduncertaintyabouttheimpactofBrexitonBritain’swiderpoliticalandeconomiclandscape.

Keywords: Banking crisis, evolutionary geographical political economy, cities and regions, unevendevelopment

NeillMarshall*,StuartDawley,AndyPike,JanePollardandMikeCoombes

CentreforUrbanandRegionalDevelopmentStudies(CURDS),SchoolofGeography,Sociology&Politics,NewcastleUniversity,NewcastleuponTyne,NE17RU.

*ProfessorNeillMarshall,CentreforUrbanandRegionalDevelopmentStudies(CURDS),SchoolofGeography, Sociology & Politics, Newcastle University, Newcastle upon Tyne, NE1 7RU,neill.marshall@ncl.ac.uk

ForthcominginJournalofEconomicGeography

Pleasenote:Changesmadeasaresultofpublishingprocessessuchascopy-editing,formattingandpagenumbersmaynotbereflectedinthisversion.Forthedefinitiveversionofthispublication,pleaserefertothepublishedsource.Youareadvisedtoconsultthepublisher’sversionifyouwishtocitethispaper.

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AnEvolutionaryPerspectiveontheBritishBankingCrisis

1.Introduction

Thispaperaddressestwoquestions.First,whathashappenedtothegeographyofthebankingsectorinBritainsincethebankingcrashof2007?Andsecond,whatarethepossibilitiesforitsgrowthoutsidethecapitalandCityof London: is institutional rationalisationand reorganisationsince thebankingcrash increasingorreducing long-runpressuresforspatialcentralisation inthecapital?Toaddressthesequestions,thepaperdevelopsanevolutionarygeographicalpoliticaleconomyofthebankingsector that stresses the dynamic nature of institutional and spatial centralisation-decentralisationprocessesandtheimportanceofthelegaciesofhistoryandgeographyinexplainingthecontemporaryspatialoutcomesofthebankingcrisis.Thisanalysisistimelyandsignificantempirically,conceptuallyandpolitically.Empirically,WójcikandMacDonald-Korth (2015) demonstrate that although finance-related employment in Londonrecoveredwellovertheperiod2008-12,areasbeyondthecapitalsharedemploymentlosses.Theiranalysis isconsistentwithGordon’s(2016)documentationofhowLondon‘gotawaywithit’ intheglobal financial crisis, demonstrating resilience to theeconomic shockanda resurgence in centralLondon’semploymentsince2007.Bycontrast,banking industry interestgroups, focusingonmorerecent years (British Bankers’ Association, 2015) and a wider definition of financial and relatedprofessional services (TheCityUK,2015), claim there is abroader-basedgeographyofemploymentgrowthsincethecrash.The paper aims to do more than simply resolve an empirical argument between economicgeographers and industry professional associations. Conceptually, the intention is to make asubstantivecontributiontodebateonthespatialitiesofthebankingcrisis.Foralltheresearchonthecrisis,economicgeographyhasyetfullytoarticulateageographicalaccounttochallengethedominanteconomicnarrativesfocusedoncommonalitiesintheexperienceofthecrisisabstractedfromtheirspatialcontext(seeDymskiandShabani,2017;Muellerleileetal.,2014).Martin(2011)hasarguedthatexaminingthetensionsandcontradictionsbetweenspatialcentralisationandconcentrationandthepossibilitiesfordecentralisationanddispersalinthegeographiesofassetcreation,re-productionanddestructionprovidesafruitfulopeningforadeeperandmoreencompassinggeographicalpoliticaleconomyofthefinancialcrisis.Onthisscore,Dow’swork(1999)isalsoimportant,highlightingtheneglect of financial institutions in accounts of the contradictory moments of centralisation-decentralisation that characterise geographically uneven development. Dow calls for a strongerinstitutionalfocusandcloserattentiontotheimpactontheevolutionoftheeconomiclandscapeoftheinvestmentbehaviouroflargebankswhichchannelgeographicallydispersedsavingsthroughtheircentralised and spatially concentrated management and administrative structures (Dow andRodriguez-Fuentes, 1997). Theoretically,webuild on these insights by developing an evolutionarygeographyof thebanking crisis thatbetter connectsworkongeographicalpolitical economywithstudiesoftheeconomicgeographiesofmoneyandfinance(seeMartinandPollard,2017).Bydrawingattention to the integral roles of history and geography in successive episodes of growth andcontractioninthebankingindustrythisaccountprovidesamorespatiallysensitiveexplanationoftheroleofinstitutionsinthebankingcrisis,adeeperunderstandingoftheconstitutiveandcausalrolesof

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unevengeographiesinthecrisisitself,andageographically-situatedunderstandingoftheimpactofthebankingcrisisonthecity-regionsofBritain.

We argue that the emergence of large banks based in London in the late nineteenth and earlytwentieth centuries, which coincided with the consolidation of financial, corporate, media andpoliticalgovernancearchitecturesandpowerstructuresinthecapital,isadeeplyentrenchedlong-termcauseofspatialdisparitiesinBritain(Martin,2015;Martinetal.,2016a;Marshall,2013).TherapidgrowthandsubsequentcollapseofEnglishregionalandScottish-basedbankinginstitutionsinthe banking crisis is examined as an illuminating and significant moment in the evolution of theestablishedrelationshipbetweenLondonandbankingcentreslocatedoutsidethecapital.Seenfromthislong-termperspective,aviewofthebankingcrisisasadiscreteandapparentlysuddeneventisaproblematicmeansofunderstanding itsgeography. Instead, theanalysisconceivesof thecrashof2007-9asacriticalepisodeinanon-goingprocessofspatialcentralisationanddecentralisationthatcreatedasignificantshockbuthasevolvedfurtherthroughmultipleaftershocksandtheinstitutionalandspatialrestructuringofthebanksinvolved.

Thisconceptualargumenttakesus,inturn,tothepoliticalimportofourtwoquestions.Analysisofthespatial concentration-deconcentrationof thebankingsector inLondon isespecially timelyandimportantbecauseweareatapivotalmoment inthedevelopmentofBritain’sdeeplyentrenchedspatially and sectorally uneven growth model (Martin et al., 2016a). Amidst the unprecedenteduncertaintyoftheimpactofBrexitonwidernationalpolitical,economicandinternationalrelations(see Hall and Wójcik, 2018; McCann, 2018), the analysis of the geography of banking speaks towhetherthiscriticalsectormightcontributetothenationalgovernment’sstatedrecognitionof“theneedtorebalancetheeconomyacrosssectorsandareas inordertospreadwealthandprosperityaroundthecountry”(May,2016a),anditsaimtocreate“aneconomythatworksforeveryone”(May,2016b; 1). It also identifies tensions emerging between government’s expressed desire to spreadprosperitymoreevenlyacross thecountry,and the fact thatopportunities for renewedgrowth inbankingaregeographicallyconcentrated.

The paper begins by elaborating our theoretical perspective and the temporal, institutional andsectoral focus of the study. It then develops a long-term evolutionary analysis of banks and thebankingcrisis.

2.Developinganevolutionaryapproachtowardsthegeographiesofbanks,bankingandthebankingcrisisDespite burgeoning interest in evolutionary thinking in economic geography (see, for example,BoschmaandFrenken,2017;Pikeetal.,2016;MartinandSunley,2015;MartinandBoschma,2007;FrenkenandBoschma,2007),relatively littleattentionhasfocusedon itspotentialcontributiontounderstanding the historically uneven geography of the banking industry. Studies adopting anevolutionaryperspectivehaveusedhistoricalmergerandacquisitionactivitytodemonstratethelong-run clustering processes that underlie the spatial concentration of banking (Boschma andHartog,2014;BoschmaandLedder,2010).However,theconnectionsofthisworktobroadertemporalandgeographicalpoliticaleconomiesofthebankingsectorremainunexplored.Relatedworkhasdrawn

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attentiontothepotentiallysignificantimpactonregionalgrowthandcreditmarketsofevolutionintheownership,organisationandgeographyofthebankingsector(Alessandrinietal.,2008;2005;Papietal.,2015;Zazzaro,1997). Intheaftermathofthebankingcrisis,evolutionaryframedanalysesofgeographicallyunevendevelopmenthavealsosuggestedthatthebankingandfinancialservicessectoris a keydriverof long-runpatternsof economic and functional specialisation, but again leave theanalysisofbanksandthebankingsectorunderdeveloped(Martinetal.,2016aandb).Thissuggestsresearchneedstofocusmoreexplicitlyontheroleofbanksandbankingastheobject (doingthe)evolvingintheeconomicgeographylandscape(Pikeetal.,2016;Martin,2011).Toaddress this researchgap,we look toDow’s (1987aandb;1992)workonthe institutionalandspatial structureofbanking for important insights intowhyand inwhatways the sectordevelopsacross space and over time. The overall picture depicted by Dow (1999; 41) is one of increasinginstitutional-spatialconcentrationasbankingprogressesinstagesfromtheemergenceofsmallbanksprovidingfinancialintermediationtolocalcommunitiestotoday’snationalbanksbasedinmajorcity-regionswhichincreasinglycompeteglobally.DrawingonMyrdal’s(1964)analysis,Dowarguesthatprocesses of circular, cumulative and self-reinforcing causation underlie institutional-spatialconcentration.Theneedforbankstoinspireconfidencemeansthatcentreswhichemergeearlyoncontinuallyreinforcetheiradvantage,basedonspecialisationinlocalisedconcentrationsofexpertise,thebuild-upofnetworksofinformationandtrust,andthemarketconfidencethattheseadvantageshelptopromote.Our approach extends Dow’s institutional-spatial insights as part of a broader andmore dynamicevolutionaryperspectivelinkingbanksandbankingtogeographicalpoliticaleconomicprocessesandcontexts(MartinandSunley,2015).Banksaresituatedwithinsetsofsocio-spatialrelationsincludingwiderbankingnetworks,multi-scalarstateagenciesandgovernancesystems,and–crucially– theplaces thatshape,andareshapedby,scalarstructuresandrelationalnetworks (Pikeetal.,2016).Dow’s(1987a;1992;1999)overwhelmingfocusonprocessesofconcentrationsays littleaboutthetensions between concentration and deconcentration, possibilities for dispersal, or howconcentration processes may be constructed or reconstructed over time after a period of moredispersedgrowth(seeAllen,2010).Inresponse,akeycontributionofourevolutionaryperspectiveistobesensitivetotheways inwhich institutional-spatialprocesseswithinbanksandbanking inter-relate with historical and place-specific economic contexts, assets and conditions, to shapeconcentrationanddispersal,bothinthelonger-termandduringepisodesofshockandcrisis(Martinetal.,2016a;Martin,2011).Indevelopingthisevolutionaryperspective,itisimportantbrieflytoelaboratetwokeydimensionsofouranalyticalframework:theevolvingnatureofthebankingcrisisandthechanginganatomyofbanksandbanking.EvolvingnatureofthebankingcrisisConnectingtheseevolutionaryinsightstothebankingcrisisposesmanychallenges,butdelineatingthecrisis itself isanessentialstartingpoint.Ourapproachframesthebankingcrisis(TABLE1)asaparticular, albeit critical, episode in a longer-term and on-going process of institutional-spatialrestructuringandgeographicaldevelopment.Inthefinancialliterature,abankingcrisisoccurswhere

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debtholdersdemandthatbanksconverttheirdebtclaimsintocashtoalevelthatcannotbemet,aliquidityshortageorcreditcrunchensues,andthebankingsystemmustthenbeunderwrittenbythecentral bank or government (Thakor, 2015).While previous economic studies debate the timing,triggersforandsignificanceofhistoricalincidentsofexuberanceandpanic(KindlebergerandAliber,2005;ReinhartandRogoff,2009),theevolutionaryapproachhereproblematizessuchanalysisasameansofunlockingthespatialitiesofcrises.Tounderstanditgeographically,thebankingcrisismustbe analysed as a critical episode within a longer-term phenomenon with significant structuralhistoricalantecedents(Christophersetal.,2017).Thisincludes,butisnotconfinedto,understandingthedrivers,characterandgeographiesofthegrowthepisodesshapingthenatureandimplicationsoftheeventualcrisisitself(DymskiandShabani,2017).Moreover,whilstoftenoverlookedinsnapshotanalyses, placing the crisis within the longer-run historical perspective of the evolving, but deep-seated, spatial structures and institutional settings of the banking sector offers a new analyticalopportunity(Martin1999;Marshall,2013).Anevolutionaryunderstandingandanongoingconceptionofcrisisacrosstimeandspacepunctuatedbyshocksofvaryingscalescopeanddurationprovidesamore telling understanding of the banking crisis which recognises the contribution of bankinginstitutionstothedynamiccentralisationanddecentralisationprocessesthatunderliegeographicallyunevendevelopment.EvolvinganatomyofbanksandbankingAssessingtheon-goingimpactofthebankingcrisisrequiresacarefulspecificationoftheinstitutionalresearchobjectaswellasthecausalprocessesoperatinguponit.Institutions–dynamicandrelationalentitiesdeeply influencedbytheirregionalandnationalsetting(Jessop,2001;PeckandTheodore,2007;2012;Pikeetal.,2009;2016)–areviewedasstrategicvantagepointsfromwhichtoanalysethe uneven geography of the banking crisis. Our evolutionary approach follows Martin’s (2000)distinctionbetween institutionalenvironmentsprovidingthebroadersetsof rulesandnorms(e.g.government regulation; industry accepted practices etc.) within which specific institutionalarrangementsinorganisationalformssuchasbanksandstateentitiesoperate(Martin,2000).Banksaredistinctivebecauseoftheirintegralroleintheeconomyandstrategicpositioninrelationtothecreation,management,distributionanddestructionofmoney.Assuch,theyarecarefullyregulatedbythestate(Christophersetal.,2017).Thespatialdynamicsofbankingthereforerespondstoshiftsin regulation and wider changes in information processing technology. Banks are not passiverecipientsofchange;asrecenteventshaveshown,theyhaveconsiderablepower,reflectingtheir‘toobigtofail’positionintheeconomy,andtheircapacitytoinfluenceandresistregulatoryadjustments.Analysis,therefore,focusesonthewayinwhichthestrategiesofbanks,asinstitutionalarrangements,areincorporatedintothefabricoflocaleconomies,seekingtoexplainhowwiderprocessesunfoldinparticular places, how the inter-relations between places evolves and how places feed into theoperationofbroaderprocesses.In2017theBankofEnglandlisted157banksincorporatedintheUnitedKingdomandafurther187international banks entitled to establish branches. Nonetheless, defining banks and the bankingsectorisnotstraightforward.FIGURE1outlinestheinstitutionsofinteresttothispaper.Banks,thefocal point of the sector, facilitatemoney transmission, provide financial services such as raisingcapitalorfundmanagementforafee,exchangeassetsbetweenbuyersandsellersandtradeontheirownaccount.Theyarecommonlydifferentiatedbytheirmarketfocusanddividedintoretailbanks

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providingpersonalfinancialservicestoindividualsandsmallfirmsandinvestmentand/orwholesalebanksoperatingincapital,foreignexchange,commodityandmoneymarketsonbehalfoflargeandmedium-sized firms.While acknowledging thesemarket differences, followingDow (1987a andb,1999),thefocusofanalysishereremainsfirmlyoninstitutionssincebanksareamajorcomponentofwhatconstitutesfinancialmarkets(Christophers,2013;2014a).Ourperspectiverecognisesthattheorganisationalboundariesoftheinstitutionalarrangementsinthebanking sector are evolving, and, therefore, extends to encompass awider range of existing andemergent institutions inanewbroaderdefinitionofbanking (FIGURE1).Mutually-ownedbuildingsocietiestraditionallyoperatedinseparatelong-termsavingsandmortgagemarketsbutdevelopedretailbankingproducts,andinthe1990smostofthelargersocietiesbecamemortgagebanks.Overthe last fifty years, large retailers have gradually developed their own financial services, and twosupermarkets,TescoandSainsbury,have incollaborationwithRoyalBankofScotlandandBankofScotlandestablishedthemselvesasfully-fledgedbanks,andsincethebankingcrisistheyhaveboughtout their partners. Ourwidened frame of reference also captures the dynamic nature of bankingwherethelossoftrustinestablishedinstitutionssincethecrisishascreatedabusinessopportunityfornewstart-upbanks(TABLE2).Thisshiftinmarketstructurehasbeenreinforcedbythenationalstateauthoritieswhohaveloweredtheminimumcapitalrequirementstolicenseabankandspeeded-uptheprocessofapprovaltoincreasechoiceandcompetition.WhilenewbankssuchasMetroandAtomhavestartedfromscratch,VirginMoneyacquiredthebankinglicenceofChurchHouseTrustLimitedpriortothepurchaseofNorthernRock(Marshalletal.,2012).J.C.Flowers&Co.,aprivateequity investment firm,purchased theKentReliantBuildingSociety in2011 to launchOneSavingsBank.AldermoreandShawbrookbroadenedtheirservicesbeyondinvestmentinsmallandmedium-sizedenterprises,andbuy-to-letinstitutionsParagonandCharterSavingsdiversifiedtobecomebanks.

Digitalisationhasalsounleashedawaveofnewfintechcompanies,someofwhomhaveobtainedabanking license (TABLE 2), including providers of mobile banking applications, crowd-fundingplatforms,peer-to-peerlenderstosmallcompaniesandoperatorsofclosedledgersusingblockchaintechnology to support international trade and transfers between banks (Langley 2016). Othersignificantmarket participants includeoperators of cashdispensers Cardtronics andNoteMachinewho have expanded as banks have withdrawn ATMs alongside branch closure programmes, andprovidersofelectronictransfersandpaymentsystemssuchasPayPal,Google,Apple,FacebookandAmazon,whohavetakenbusinesstraditionallyconductedbybanks(LangleyandLeyshon,2017).Bydeveloping newways of providing banking services, these institutions are promoting institutionalrestructuringinestablishedbanks.Advancingandbroadeningthetraditionalunderstandingofbanksand the banking sector in this manner, and identifying the interrelations between the variousinstitutionsinvolved,theframeworkhereconceivesofalltheseinstitutionsasoperatingacrossspaceandtimeinrelationalnetworks,andplacesthemterritoriallyincity-regions,unpackingspatiallytheboxesinFIGURE1,andhighlightingtheirdifferentandunfoldinggeographies.

The paper uses UK Office for National Statistics (ONS) employment data to explore the evolvinggeography of the banking crisis. Our fine-grained andmore encompassing view of banks and thebanking sector is represented imperfectly by the ONS. Care is required when conducting spatialanalysis given changes in data collection and classification over time and geography. The analysisoperationalisesthedefinitionofbanksandbankingasindicatedinTABLE3.Fortheperiodfrom2009-2014, it uses the 2007 Standard Industrial Classification (SIC) to examine banks (both retail and

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investment)separatefromthecentralbankandbuildingsocieties.Forthelongerperiod1999-2014,bankingisofnecessitydefinedasMonetaryIntermediation(SIC64.1)whichgroupstheseinstitutionstogether. Over the same period, recognising that banking is part of and has links with FinancialIntermediation, the analysis focuses on SIC 64which includes (in addition to banking) investmenttrusts, other credit and leasing institutions, holding companies and venture capital. The analysiscontextualisesbanking inthewider financialsector includingSIC65 InsuranceandSIC66AuxiliaryServices to finance and insurance (e.g. administration of financial markets, brokers and fundmanagement).AlltheseSICsaretrackedbackto1999forBritishcity-regions(definedaccordingtoParkinsonetal.,2006),theearliestpossibledateusingthe2003SIC.Thisdisaggregatedfocusoncity-regionsintheirbroaderregionalandnationalcontextrecognisestheurbanfocusofbankingandotherfinancialinstitutionsandenablestheanalysistoconnectinstitutionalandspatialemploymentchange.Carehasbeentaken(byexaminingoverlappingyearsforbothSICsandusingtheaverageofpairedyears) to ensure that the transition from SIC 2003 to SIC 2007 and the change in the surveymethodologyfromtheAnnualEmploymentSurveytotheBusinessRegisterEmploymentSurvey in2009doesnotaffecttheanalysis.Theconstraintsofdisaggregateddataassemblyandanalysismeanthat theexaminationofemployment is confined toBritainand inaUKcontextexcludesNorthernIreland.3.EvolvingrelationsbetweenLondonandbankingcentresoutsidethecapitalinthebankingcrisisLondon’shistoricalandgeographicaldominance

TheinheritedspatialstructuresofbankingandthepersistentnationaldominanceofLondonprovidethecontextforthegeographiesofthebankingcrisis.Takingalong-termevolutionaryperspective,theemergence of large banks headquartered in London in the latter nineteenth and early twentiethcenturies(Collins,1988)iscentraltoBritain’sparticulargeographicalpoliticaleconomy.Wehaveanincomplete understanding of this process of institutional-spatial concentration and the associatedincorporation of private banking institutions initially in to regional joint-stock companies andsubsequently in tonationalbanks– tied through financierson theirboards– to thewiderCityofLondon.However,itestablishedaterritorialfixofmoneyandpower(Christophers,2014b;Hall,2017)involvinganintimaterelationshipbetweentheelitesintheheadquartersofemergingnationalbanks,theBankofEnglandandfinancialinstitutionslinkedtointernationaltradeincloseproximitytothecentreofnationalgovernmentinWhitehallandWestminsterLondon.BankingandfinancewasplacedattheheartoftheBritishstateandregularcontactbetweenthebanks,theBankofEngland,financehouses of the City, the Treasury and government, strengthened the bonds between theworld offinanceandthenationalpoliticsofpower(CainandHopkins,1993;Marshall,2013).Thiscreatedafunctionaland informal formofmanagementandcrisis control, co-ordinated through theBankofEngland’spowerfulinfluenceoncartelisedandself-regulatedmarkets,whichprovidedtheCitywithahegemonicdominanceovergovernment’seconomicpolicy.

AccordingtoTruptil(1936:193–194)thegeographicaloutcomeofthisinstitutionalconcentrationandspatialcentralisationwasatightlyclusteredbankingquarterintheheartofLondon.Thisinstitutional-spatial concentration, creatingabanking complexwithin awider financial centre characterisedbydeepfinancialmarketswithcomplexanddiverseworkforceskills,hasoverthelastcenturyexertedashapinginfluenceoverthegeographicalandpolitical-economicevolutionofthebankingandfinancial

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servicessector inBritain.Aninstitutional-spatialdivisionof labourwasestablished(Quinton,1979:139;Marshallelal.,1992)inwhichseniormanagerial,specialistfinanceandsupportjobsinbankinggraduallyspreadmorewidelythroughoutLondonandinthe1980sextendedfromtheCitytoCanaryWharf (Gordon, 2001). London’s national dominance of banking was striking in an internationalcontext(WójcikandMacDonald-Korth,2015;Klaggeetal.,2017;KlaggeandMartin,2005),andit’sbankingemploymentordersofmagnitudegreaterthanotherlargecity-regions,andsmallerbankingcentres (TABLE4). Institutionalconcentrationandspatial centralisationbydistancingbankingandfinancefromcity-regionsoutsideLondonamplifiedspatiallyunevendevelopment(Pratt,1998).

Spatialdispersalinthebankingboom

The persistent growth of banking in the capital has been accompanied by cyclical rounds ofgeographical dispersal of junior and middle ranking jobs, too complex to relocate to lower costlocationsabroadortiedtoBritainforregulatoryreasons,graphicallydescribedbyLeyshonandThrift(1989)asphaseswhensoutherngrowthmovednorth(seealsoMarshalletal.,1992;Frenchetal.,2010).ThebankingboominthelatetwentiethandearlyyearsofthetwentyfirstcenturyappearedtomarkasignificantevolutioninthisrelationshipbetweenLondonandbankingcentresoutsidethecapital.Theco-incidenceofbankingemploymentdeclineinLondonandthestrongperformanceofScotland,WalesandagroupofEnglishregionsincludingtheNorthEast,NorthWestandYorkshireandtheHumberwashailedasanewepisodeinwhichsoutherngrowthhadpermanentlyshiftednorth(Augar,2009).London’semploymentdeclinedfrom1999/00andreachedalowpointintermsofitsshareofnationalemployment(29.8%)in2003/4andin2005/6intermsofnumbersofjobs(129.1K).The most striking contrast was with Scotland between 1999/00 and 2003/4 when bankingemploymentincreasedby17.6K(47.2%),andtheNorthEastofEnglandwherebetween1999/00and2007/8employmentincreasedby4.7K(44.8%)(FIGURE2).

This growth episode is connected to decades ofweakening regulation and financial liberalisation,designedtorejuvenateLondonasaglobalfinancialcentre,whichreducedtheboundariesbetweenindividualmarketsandincreasedcompetitionmostnotablybetweenthebanksandbuildingsocieties.Thebroadeningoftheinstitutionsinvolvedreducedmarketconcentrationindomesticretailbanking(Bowenetal.,1999)and,combinedwithfinancialinnovation,createdanopportunityforregionally-based banks, former building societies that had demutualised, and Scottish banks excluded frompreviousroundsofinstitutional-spatialcentralisationwithinLondon’sorbitinthelate19thandearly20th centuries, to expand and challenge larger London-based institutions. A new entrepreneurialbankingbusinessmodelbaseduponrapidgrowthfundedbysecuritisationininternationalwholesalemarketsprovidedinstitutionsoutsideLondonwithameansofovercomingtheirperipheralpositioninrelationtothemainlocusofeconomicgrowthandactioninthebankingsectorandhousingmarketinthe southof the country,while simultaneously allowing them toexploit their position in lowcostlocationssuitedtohostprocessingandadministrativecentres(Marshalletal.,2012;Marshall,2013;Dawleyetal.,2014).Asaconsequence,theboomparticularlybenefitedcity-regionswhereEnglishregionalandScottishbankswerebased,notablyNewcastlewhereNorthernRockwas locatedandemploymentincreasedby4.0K,andEdinburghwhereRoyalBankofScotlandandBankofScotlandwerebased and employment increasedby 4.4K 1999/00 to 2005/6 (FIGURE3). Other prominentregionalcompaniesinvolvedintheboom–BradfordandBingleyandtheHalifax–werebasednear

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Leedswhereemploymentincreasedby2.1K1999/00to2007/8alongsidesimilargrowthinotherlargeurbancity-regionsinthenorth.Theseresultsdemonstrateastrikinggeographicalfocustotheboombeyondthecapital.

Thebankingcrisisasafailedepisodeofspatialdispersal

The banking crisis, originating in the US housingmarkets, crystalized in Britain in 2007-9when asignificantpartofthebankingsystemwasclosetoortechnicallyinsolvent.Amidstfearconcerningtherisks of economicmeltdowngovernment first provided loans and guarantees, thenbailed-out thebanksthathadgotintodifficulties(Langley,2015),whichinturnengagedininstitutionalrestructuringto pay-back the financial support. Rather than contributing to a discrete event, the banking crisisunfoldedthroughthespatialrestructuringoftheinstitutionsinvolved,reflectinginstitutionalstrategicresponses to the ongoing economic shocks, influenced by existing institutional architectures andpatternsofinvestment.

Consolidation of strugglingmortgage banks was central to the banking crisis. Northern Rock andBradfordandBingley,experiencedliquidityproblemsandwerebroughtintostateownershipin2008(Marshalletal.,2012).BradfordandBingley’sbranchnetworkwasimmediatelysoldtoSantander,aSpanishownedbankthathadacquiredthemortgagebanksAbbeyNationalin2004andAllianceandLeicesterin2008.NorthernRock’smuchreducedretailbankwaspurchasedbyVirginMoneyin2012,anditsremainingloanbookconsolidatedbygovernmentwithBradfordandBingley’sandgraduallysold-off(TABLE1).ThedefaultofIcelandicbanksin2008badlyaffectedBritishbuildingsocietiesthathaddepositedfundswiththem,addingtothepressuresonsmallermutualinstitutions.Thelargestremaining building society, the Nationwide, acquired the Portman, Derbyshire, Cheshire andDunfermlinesocietiesbetween2007and2009.During2009,theBritanniabuildingsocietywastakenoverbyCo-operativeBanking,andhassubsequentlybeencentraltotheongoingrationalisationofthelatterinstitutionwhichrequiredsubstantialinjectionsofcashfromhedgefundinvestorsafterafailedattempttosellthebankin2017(TABLE1).HalifaxBankofScotland,amergerofthelargestEnglishmortgagebankandanestablishedScottish institution,was takenoverby LloydsTSB in2008withgovernmentsupport.TheLloydsBankingGroupwasrequiredbyEuropeanUnion(EU)competitionconcerns tosell-off631branchestoa reconstitutedTrusteesSavingsBank in2013.The latterwassubsequently acquired in 2015 by Sabadell a large Spanish bank, and following extensiverationalisationthelastofthegovernment’ssharesinthecompanyweresoldin2017(TABLE1).RoyalBankofScotlandalsocollapsedin2008andinreturnforgovernmentfinancialsupportwasexpectedtomeetEUstateaidconcernsbyselling-off314branchesundertheWilliams&Glynname.However,thelackofaseriousbuyerinsteadledin2017totheestablishmentofa£425mfundtosupporttheexpansionofestablished institutions in thesmallbusinessmarket.Followingamajor restructuringprogrammeandthewinding-upofitsinternal‘badbank’oftoxicassets,thegovernmenthasinitiatedthesell-offofits71%stakeinthecompany(TABLE1).

Institutionalrestructuringwasunderpinnedbyarevisedbusinessmodel(Ertuck,2016).Constrainedbyweakereconomicgrowthandlower interestrates,andcompelledbygovernmenttoholdmoreliquidassets,largercapitalbuffersandseparateretailfrominvestmentbanking,institutionsfocusedonachievingprofitsviaimprovedratesofreturnoncapitalratherthanthemorespeculativemoney-makingoftheboomyears(LloydsBankingGroup,2015;RoyalBankofScotlandGroup,2015;Barclays

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plc,2015;HongKongandShanghaiBankingCorporationGroup,2015;NationwideBuildingSociety,various years). Numerous and on-going rounds of geographical rationalisation and job reductionsbrought spatial dispersal to an end. The spatially-embedded and rapidly growing character of theEnglishregionalandScottish-basedinstitutionsmeantthattheywereparticularlypronetoover-reachthemselves as part of the excessive exuberance of the boom years. As these companies wereincorporated intoother institutions,thishadanegative impactonnorthernareas.TheNorthEast,NorthWest and Yorkshire and the Humber declined in employment by 20-27% from 2007-/8 to2013/14,andwithintheseareasthecity-regionsofNewcastle(-38.8%),Liverpool(-30.1%),Glasgow(-24.9%)andLeeds (-22.5%) lost substantialnumbersof jobs (FIGURE2and3). Interestingly,after2007/8thecontractioninemploymentwasgreatestintheEast,EastMidlandsandtheSouthEast.Indeed,severalregionsinthesouthofthecountrylostsubstantialnumbersofjobsoverthe1999/00-2013/14 period as a whole, notably the South East (-21.9K; -45.2%), East (-12.1K; -47.7%),WestMidlands(-9.8K;-29.2%)andSouthWest(-7.9K;-22.3%).Theselosseswereallmoreinrelativetermsthan northern areas which had at least witnessed growth in the boom years (FIGURE 2). This isevidenceofthegeographicalimpactofthechangingtechnologically-mediatedanatomyofbanking,intensifiedbythebankingcrisis.Retailbankbrancheshavetraditionallybeentheprincipalmeansofinstitutionalinteractionwithcustomers.Formanyyears,computertechnologyhasshiftedbackofficefunctionsoutofbranchesand intostandaloneofficesandautomatedcustomer-facing functions incontactcentresdispersedto lowercost locations (MarshallandRichardson,1996). Institutionsareadapting thisdivisionof labourbydevelopingonlinedigitalaccessandsales; slimming-down theirinternal operations and incorporating artificial intelligence into customer interactions. This isparticularly affecting the administrative centres and back offices developed outside the capital inpreviousroundsofdecentralisingrelocation,andbranchesoutsidemajorurbancentresasnetworksretrenchtomoreaffluentareasandlocationswithalargerfootfall(Edmonds,2018;FIGURE3).

Underliningthevalueofourgeographicallysensitiveapproach,thecrisiscanbeseentohaveunfoldeddifferentlyinScotlandreflectingitsparticularhistoricalevolutionasanindependentbankingcentre(Checkland,1975).Followingstrongearlygrowth,employmentinScotlanddroppedbacksharplyfrom54.9Kin2003/4to36.1Kin2011/12,andchangeislessmarkedthereafter(FIGURE2).NotableisanimprovedperformanceoftheEdinburghcity-regionwhichgrewinemploymentby22.5%between2007/8and2013/14associatedwithariseinitslocationquotientfrom1.85to3.09(FIGURE3andTABLE4).Edinburgh’s improvementcoincideswith theattractionof theheadofficesof thenewlycreatedTrusteeSavingsBankandtheexpandedVirginMoney.TescoandSainsburyestablishedtheheadquarters for theirbankingarm inEdinburghaspartof their collaborationwithRoyalBankofScotlandGroupandBankofScotlandbasedinthecity.ThenewUKGreenInvestmentBankwasalsosetupinScotland’scapital,thoughitsacquisitionbyaconsortiumledbyMacquarie,anAustralianbank,hasraisedquestionsaboutitslong-termfuture.Nonetheless,thehistoricalindependenceoftheScottishbankingsectorpositionedEdinburghtobenefitfromtheriseofchallengerbanksintheboomyearsand,incontrasttoothercity-regionsoutsideLondon,thismomentumhassubsequentlybeensustainedby theemergenceofnewentrants. Thismorepositivepicturemustbequalifiedby thecaveatthattherestructuringofRoyalBankofScotlandisincomplete(TABLE1).

Backtothefutureinthebankingcrisis:explainingthereassertionofLondon’sdominance

ArguablythegrowthinLondon’semploymentisthemoststrikingaspectofthebankingcrisis(FIGURE4).Fromalowpointof129.1Kjobsin2005/6,itsbankingemploymentincreasedby10.8%to143.1K

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in2013/14.ThoughLondondidnotrecoverallitsformeremployment,giventhedeclineelsewhereinBritainitsshareofnationalbankingemploymentincreasedfrom29.8%to38.4%–amarkedchangeinarelativelyshortperiod.Disaggregatingthesetrendsindicatesthatfrom2009thestrengtheningofLondon’s position involves central, retail and investment banks. Central bank employment in thecapitalincreasedby104%between2009/10and2013/14accountingforalmostalloftheadditional1.7Kjobsnationally.Thiswasexceededbyretailandinvestmentbankswhichincreasedemploymentby4.9KinLondon(3.7%)againstanationaldeclineof29.6K(8%).ThischangeinLondon’sfortunescoincidedwithgrowthinfinancialsectoremploymentinthecapital.EmploymentinAuxiliaryServicesgrewby54.8K,counter-balancedby insurancewhichdeclinedby24.8Kover the1999/00-2013/14period(FIGURE4).Inbothcases,thereisnosignificantchangeinLondon’sperformancerelativetothenationalaverage;theseindustriesbroadlyfollowthenationaltrend.ThesharpchangeinLondon’sfortunesisspecifictobanking.

Thisgeographicallyconcentratedtransformationwasunderpinnedbymassivenationalstatesupportforthebankingsector(Froudetal.,2011;Langley,2015).Initially,thePrimeMinisterandtheTreasuryplayedthedominant role in themanagementof thecrisis (Darling,2011),andthenew institutioncreatedtomanagestateholdingsinthebankingsector–UnitedKingdomFinancialInvestments–wasbased in the Treasury. Subsequently, regulatory reforms designed to reduce risk-taking andinterdependence inthebankingsystemenhancedtheroleoftheBankofEnglandandwideneditsremitandcapacitytoincludemacro-prudentialregulationandresilience(Langley,2015).TheBank’smonetarypolicywascrucialinhandlingthecrisisthroughitscommitmenttolowinterestrates,andwhenthiswasinsufficientamidstaweakrecovery,QuantitativeEasingwasusedtopushmoremoneythroughthecentralisedbankingsector(Gordon,2016).Thisdeepeningofthetiesthatbindthebanksto the Bank of England and the politicians inWestminster acknowledgingmajor banks were tooimportanttobeallowedtofailagaindemonstratesthecentralroleoffinancialinterestsandactorsinBritain’s particular political economy and variegation of capitalism (Christophers, 2017).However,theseshiftsunfoldedinamannerthatweakenedthepoliticalpositionoftheretailandinvestmentbanks,giventheirexcessesintheboomandtheevidentdamagetheyinflictedontheeconomy(Johaletal.,2014).

While financial support from government including the Special Liquidity Scheme and bail-outstemporarily sustained banks with a strong footprint in northern Britain, ultimately organisationalconsolidation in the banking crisis reinforced institutional-spatial centralisation in London(Independent Commission on Banking, 2011). There was a sharp increase in institutionalconcentration in the key bankingmarkets following corporate failures (Competition andMarketsAuthority(CMA),2014).Ofthe16domesticbanksrepresentedin1960,by200915wereownedbyfourbankinggroups:Barclays,HongKongandShanghaiBankingCorporation,RoyalBankofScotlandGroupandLloydsBankGroup.AccordingtoDaviesetal.(2010),thesebanksalongwithSantanderandtheNationwidebuildingsocietyaccountedforapproximately80%ofUKcustomerlendinganddeposits. The more recent CMA (2016) investigation confirmed that despite subsequent sell-offsdomestic banking markets remain highly institutionally concentrated with the largest four banksproviding70%ofpersonaland83%ofbusinessaccounts.Asaconsequencethecapital’spositionasaheadquarters locationwas strengthenedwith themajorbanks,apart fromRoyalBankofScotlandGroup,nowbasedinLondon,whiletheNationwidebuildingsocietyisheadquarteredinSwindon.

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Londonwas negatively affected by the unwinding of asset-backed securities byUS and Europeaninvestmentbanks,andthesubsequentimpactoftheglobalrecessiononworldtradefurtherreducedtheirintermediation,mergerandacquisitionbusiness(Wójcik,2012;Wójciketal.,2016).However,priortotheEUreferendumin2016,theseinstitutionsreinforcedtheircommitmenttoLondonasabanking centrewith an open, flexible and diverse labourmarketwell suited to challenging times(Wójciketal.,2017).GrowingAsianbankswerealsodrawntoLondonasagatewaytotheEUandbyitscentralgeographicalpositioninrelationtotime-zones.Finally,thewidergrowthofoutputinthecapital’s economy (Tyler et al., 2017), inflation in land and property markets and the associatedincrease in incomes andwealth sustained domestic bank branch networks in the capital. It is nosurprise thatMetroBank, anewstart-upofferingabespokepersonalbanking service, focused itsbranchesonLondonandthisfurthermitigatedthecost-cuttingandreshapingofbranchnetworksinthecapital.

Our analysis indicates that the long-run institutional-spatial division of labour and developmentalpathwaysarewell-establishedandtheassociatedinstitutionalstrategiesinresponsetothebankingcrisisarelikelytopersist.However,newmedium-sizedbankscreatedorenlargedbystatesell-offs,Santander,VirginMoneyandTrusteeSavingsBank,thelattertwoheadquarteredinEdinburgh,havethepotentialtore-invigoratetheemergentcentrifugalgrowthinitiatedintheboom.TheCMA(2016)indicatesthattheshareofthesebanksinpersonalandbusinessmarketshasmodestlyincreasedsincetheonsetofthebankingcrisisandthisisconfirmedbyindustrysources(BartyandRicketts,2014).Asthebanksandbankingsystemhaveevolved,theneedtoestablishanationalbranchnetworkisnolonger an insurmountable barrier for such institutions, although they face other considerableheadwinds.Establishedlargerinstitutionshavesignificantlyreducedtheircostsofoperation(LloydsBankGroup,2015).Whilenewinstitutionscanavoidthecostdisadvantageofolderlegacytechnologyplatforms,thisdoesnotapplywhereinstitutionshavebeenhived-offfromestablishedorganisations.The Trustee Savings Bank which initially ‘piggy-backed’ on Lloyds Bank Group’s IT, delayed thenbotched its transfer toSabadell’soperatingplatformwhich is significantlyaffecting itsprofitability(TABLE1).ThispointisreinforcedbythefailedattemptoftheRoyalBankofScotlandGrouptosell-offbranchestoare-establishedWilliams&Glyn.Moregenerally,theinherentdifficultyofchallengerbanks competing successfully with larger established institutions has been one of the importantlessonsoftheBritishexperienceofthebankingcrisis,andliesbehindtherecentannouncementoftheacquisitionofVirginMoneybytheClydesdaleandYorkshireBankGroup.

Technologicalandregulatorychangesarealsocreatingopportunitiesfornewsmall,nimble,specialistentrantssuchasAtomandStarlingtoprovideapersonalisedserviceusingmobiledigitaltechnologywithout a national branch network (TABLE 2). They have the potential to affect the long-termdominanceoflargeinstitutionsinbankingandthistrendisbeingencouragedbytheintroductionofopenbanking legislationthatfacilitatesthirdpartyaccessto individuals’bankaccounts. However,these institutionsneedtoraisecapital forgrowthandtobolster theiradministrativesystems,andhavereceivedinvestmentfromestablishedinstitutions.BancoBilbaoVizcayaArgentaria(BBVA),oneof Spain’s largest banks, has as part of its digital expansion taken a substantial stake in Atom. InanotherexampleofinternationalinvolvementintheBritishbankingsectorFirstRand,amajorSouthAfricanbankinggroupwithaBritishcarfinanceoperation,hashadabidacceptedbyAldermore,andShawbrookhasbeentakenoverbyaprivateequityconsortium(TABLE2).Smallercompaniestendtoavoidretailcurrentaccountmarketsinwhichestablishedinstitutionsdominateandwhereincreased

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regulatorycapitalrequirementsaddtocosts.Institutionsemergingfromfintechhavealsoencouragedestablishedinstitutionstoimprovetheirdigitalprovision.Mostsignificantfortheargumentshere,adistinctive aspect of the new entrants in banking is that their location reflectsand reinforces theexistingstructuraldominanceofLondonintheindustry;morethanhalfofthenewdomesticbanksestablishedsince2009arebasedinLondonanditsimmediatehinterland(TABLE2).

Brexit:anewepisodeintheevolvinggeographyofbankinginBritain?

Priortothe2016Brexitreferendumitseemedreinforcedinstitutional-spatialconcentrationinLondonwould initiate another roundof cyclical dispersalsof administrative andmiddlemanagement jobsfrom the capital. Bank of America publicised the relocation of 2,000 jobs from London to itsestablishedbaseinChester,JPMorganstated1,000jobswouldmovetotheirbaseinBournemouth,andDeutscheBankannounced1,000traderswouldtransfertoBirmingham.Regulatorychangeswerealsoreinforcingrelocation;theHongKongandShanghaiBankingCorporationGrouphasmovedtheheadofficeforitsring-fencedretailbankfromLondontoBirminghaminvolvingapproximately1000jobsreinforcingtheinstitutionalseparationoftheretailandinvestmentpartsofthebankbyphysicalandgeographical separation,andsimultaneously renewing the linkof the formerMidlandbank toBirmingham.

However,thiswell-establishedpatternhasbeeninterruptedbyBrexitwhichthreatenstounleashaPandora’sBoxoftroublesaffectingLondon(Pettifor,2017),whichcouldchangethebalancebetweenLondonandbankingcentresoutsidethecapital.From2010,thenewlyelectedConservative-LiberalDemocrat coalition government had focused on deficit and debt reduction through austerity toresolvethefinancialconsequencesofthebankingcrisiswhichwasconstructedasafiscalcrisisofthestate(Blyth,2015).Popularresentmentagainstthesocialisationofthecostsofthecrisis,thespatiallyunevenimpactsofeconomicchangeandausterity,andtheneglectoftheplaces‘leftbehind’wereimportant contributory factors in the vote for Brexit from the EU (Rodríguez-Pose, 2018). Furtherafter-shockscontinuetoripple throughthebankingsystemas institutionsbased inBritaingrapplewiththeuncertaintiesofBrexitandseektomanagetheirfutureeconomicandtradingrelationshipswiththeEU27.Muchdependsonwhichwingof thecurrentminorityConservativegovernment isascendantinarticulatingandseekingtodeliver‘hard’or‘soft’versionsofBrexitinthenegotiationswiththeEU,andwhether furtherderegulationemergespost-BrexitdesignedtoenhanceLondon’sopenness to global capital (CITYPERC, 2017). Investment bank strategies are also important andwhethertheytaketheopportunityofBrexittorepatriatejobsfromLondontotheirbasesinNewYork,Tokyo,HongKongorSingapore,oralternativelybookbusinesscurrentlyconductedinLondoncloserto its Europeanorigination.However, the emphasis in our evolutionary approachon the long-runstructural influences on spatial development suggests the stickiness of existing activities, sunkinvestmentandemploymentinLondonshouldnotbeunderestimated.LondonremainstheEuropeanbanking capital with strong and extensive global networks, and dominates bond clearing, equityunderwritingandcurrencytrading.ItisconsiderablylargerthanotherEuropeanbankingcentreswithadeepandwide rangeof financialandsupportinghigh-levelprofessionalbusinessservices that isdifficulttoreplicateelsewhere,whichmakesinstitutionsreluctanttorelocate.Nevertheless,London’sresiliencewillbetestedasEuropeancentresactivelycourtbanking institutionstorelocate (Henin,2017).

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MostanalystsassumeBrexitwillactasadragonLondon’sgrowth(HallandWójcik,2018;DymskiandDorry,2018).Atthecloseof2017,itwasannouncedtheEuropeanBankingAuthority,anEUagency,wouldrelocatefromLondontoParis.TheUKgovernmentcurrentlyrulesoutremainingintheSingleMarket, and European authorities are reluctant to include financial services in a trade agreementmirroringfullSingleMarketaccesspost-Brexit.AsaconsequencethereislikelybealooserrelationshipbetweentheUKandtheEU27withreduced levelsofaccesstoeachother’sbankingmarkets (HMGovernment, 2018; 25-32). This is straining the tight relationship between banking, finance andgovernmentinLondon.InstitutionscurrentlytradingacrosstheEU27borderusingpassportingrightshaveappliedfornewEUoperatinglicencesandareplanningtoupgradeofficesinEuropeanbankingcentrestomoreautonomoushubstocopewithlesscertainaccesstomarkets.LargeinvestmentbanksareleadingthewayinastagedseriesofrelocationsfromLondoninvolvinginitiallysmallnumbersofjobswhichwillbuildupasBrexitincreasesbarrierstotradeinservices(HouseofLords,2018).Notallproposedrelocationsare in thepublicdomain (Edmonds,2018b),however,publicisedrelocations,shapedbyexistinginstitutionalcommitments,arespreadacrossanumberofcentres.GoldmanSachs,MorganStanley,Citigroup,DeutscheBankandNormuraHoldingshaveannouncedtheywilldeveloptheirpost-BrexitEUheadquartersinFrankfurtandJPMorganwillexpandinFrankfurtaswellasParis,Dublin and Luxembourg. In their public pronouncements the Hong Kong and Shanghai BankingCorporation, BNP Paribas and Societe Generale have indicated they will locate their EuropeanoperatingcentreinParis,RoyalBankofScotlandhavechosenAmsterdamandBankofAmericaandBarclaysDublin.INGGroepistheonlymajorlenderpublicallyconsideringamovetoLondonfromtheEU27.

Brexit isalsopredictedbyacademicstudiesandinternalcivilserviceassessmentstohavenegativeimpactsonoutputinBritishcity-regionsoutsidethecapital,reflectingtheirdependenceonfrictionlessEUtradeingoodsandtheirlong-termstructuraleconomicweaknesses(Pollard,2018),andthiswillfeed through to incomes and bank branch networks.Newhot spots of employment growth fromrecent relocationswill in all likelihood continue to be offset by thewider employment decline inbankingdrivenbyrationalisationandtechnologicalchange.Arecentannouncementby JPMorganthatitwillcreateaglobaloperatingcentreemploying2,500administrativepostsinriskmanagementandcontrolfunctionsinWarsawalsointroducesthepossibilitythatpost-Brexitimpactsmightbefeltinbackofficecity-regionssuchasBournemouth,whereJPMorganhasanadministrativebase,andwhichhasbeenapreviousrecipientofofficedecentralisation fromLondon(TABLE4).Recognisingthese various considerations, and given thedeep structural advantagesof London, it is likely thatBrexitwillnotalterspatialcentralisation inBritain,London’sdominancewillcontinuebutat lowerlevelsofactivity.

4.Conclusions

Thepaperhasconstructedanevolutionarygeographicalpoliticaleconomyofbanks,bankingandthebankingcrisisasanalternativetoeconomicnarrativesthatabstracttheeventsofthecrisisfromtheirspatialcontext(DymskiandShabani,2017).Itfocusesonlong-runstructuralinfluencesonthespatialcentralisation-decentralisation processes operating during the crisis (Martin, 2011). Taking Dow’s(1999) analysis as a starting point, it demonstrates the ways in which institutional-spatialconcentrationestablishedinthenineteenthandearlytwentiethcenturiescontinuestoinfluencehow

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the banking sector in Britain operates today, and the way in which the banking crisis unfolded.Regulatory changes combinedwith financial innovation in the latter twentieth century createdanopportunity for English regional and Scottish banks excluded from previous institutional-spatialcentralisationtoexpandexcessivelyastheychallengedlargerLondon-basedinstitutions,andseveralsubsequentlyfailedinthebankingcrisis. Anevolutionaryperspective,thus,demonstratesthatthebankingcrisiscannotbeanalysedasadiscreteperiodbetween2007and2009.Rather, it isanon-goingprocessofinstitutional-spatialrestructuringwithhistoricalantecedents,involvingare-drawingof institutional boundaries, overlapping institutional and technological changes, and locationaladaptationsinresponsetoshiftsinregulatoryoversightandthecostsofoperationinthecapital.

Thedominantconclusionemergingfromafine-grainedanalysisofanewandbroadenedconceptionofbanksandthebankingsectorinBritainsupportsandextendstheanalysisofWójcikandMacDonald-Korth (2015) andGordon (2016). Institutional-spatial restructuring in thebanking crisis reassertedLondon’spositionasthedominantbankingcentreafteraperiodofgeographicaldispersalfromthecapital.Ashortepisodeofemploymentgrowthincity-regionsinthenorthofthecountryassociatedwiththeexpansionofEnglishregionalmortgageandScottishbankswasreversedandinthesouthofthecountry,outsidethecapital,amoreestablishedtechnologically-mediateddeclineinemploymentwasdeepenedbythecrisis.London’sreinforceddominancehighlightstheenduringinternationalroleofLondon,andthepersistentinfluenceoflargeLondon-basedinstitutionsinthebankingsectorongeographicallyunevendevelopment.Despiteallthemodernisationandinvestmentininfrastructureandmarketing, banking centres outside London remain precarious and verymuch in the capital’sshadow. Locations benefitting from recent geographical dispersals from London lost substantialnumbersofbanking jobsduring theperiod1999-2014. In thereshapingof thebanking industry inBritain following the eruption of the banking crisis in 2007, peripheral locations have too oftencompetedonthebasisofhistoricallyconstructedadvantagesoflowercostsorareservoirofroutinelabour. These factors lay, for example, at the heart of Northern Rock’s businessmodel andwereemphasisedinthepublicpronouncementsofAtombank,anewstartupinthesameregion.

Our evolutionary geographical account of the changing anatomy of banking demonstrates thedynamicnatureof the sector, and indicates that thedominanceof centralisationprocesses is notpredeterminedorinevitable.Theshiftfromboomtocrisisintheearlyyearsofthetwentyfirstcenturywas a significant moment in which processes of centralisation re-emerged and the possibility ofdispersalwascloseddown.Theforcesofcentralisationexpressedthroughthepressuretosupportcrucially important large institutions areparticularlypowerful at such timesof crisis.However, anopportunitywasmissedtosupportanemergent,Englishregionally-basedsetofbankinginstitutionsinamanner thatcouldhavepromotedamoredispersedoutcome. In thiscontext,howdurable isLondon’ssignificantrenewalandstrengthenedpositionrelativetootherdomesticbankingcentres?ThestrengtheningoftheBankofEngland’straditionalroleasamediatorbetweengovernmentandfinancialinstitutionsappearslikelytolast,butthefinancialinvolvementofthestateandintenselevelsofoversight lookset tobeshorter livedthan initiallyenvisagedandthismaystabilise thegrowingnumberofregulatorsinthecapital.Ontheotherhand,theestablishedinstitutional-spatialdivisionoflabouranddevelopmentalpathwaysappearresilient.Thoughourbroadenedframeworkshowstheboundaryofthebankingsectorisfluidandnewparticipantsareenteringthemarket,theemergenceofmostoftheseinstitutionsinLondonanditshinterlandreinforcesprocessesofspatialconcentration.WhileBrexitmaydiminishLondon’sroleasaEuropeancapitalforinvestmentbanks–andalreadyitsgrowthisslowing–itseemsunlikelytooverturnsuchpressures.Ofmoreimportance,inthelonger-

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term,thedominanceof largebanksmaybethreatenedbytheconvergenceofbankinganddigitaltechnologywhichprovidesopportunitiesfortechcompaniesGoogle,Apple,FacebookandAmazontofurtherexpandinthebankingsectorwithuncertainspatialconsequences.

Notwithstanding calls to spatially re-balance the British economy, and government policy tostrengthenthenorth,midlands,southandwest,thedeeperunderstandingofthebankingsector’scontribution to city-region economies provided here suggests government’s desire to spreadprosperitymoreevenlyacrossthecountryiscompromisedbythefactthatopportunitiesforrenewedgrowth appearmoreoften to be in or around London.Notwithstanding the insistenceof bankinginterestgroups(BritishBankers’Association,2015;TheCityUK,2015),andanumberofhighprofilerelocationsannouncedandcelebratedinthepress,theprospectsforthegrowthofthebankingsectoroutsideLondonappearconstrained.Theonlypositivecity-regionperformeroutsidethecapitalduringthebankingcrisiswasEdinburghwhichwassupportedbylong-termstateinvolvementintheRoyalBankofScotland,anditsownlongstandinginstitutionalandlabourmarketattractionstonewmarketparticipants.Yet,anyargumentthatthisrepresentsanewinstitutional-spatialdirectioninthebankingsectorisqualifiedbythefactthatRoyalBankofScotland’srecoveryremainsincomplete.Furthermore,governmentmoves towardsamoregeographically-sensitive IndustrialStrategysay littleabout thebankingandwiderfinancialsectorandareheldbackbyanapparentlackofcapacityforthinkingaboutplace-basedstrategiesinBrexitBritain.

ACKNOWLEDGEMENTS

Wewouldliketothanktheeditorandtherefereesfortheirveryhelpfulguidancewhichsignificantlyimprovedthepaper.ThefiguresweredrawnbyColinWymer.

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TABLESANDFIGURES

Figure1:AnEvolutionaryApproachtoBanksandBanking

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Figure2:BankingEmployment(FTEs)byRegioninBritain,1999-2014

Source:AnnualCensusofEmploymentandBusinessRegisterandEmploymentSurvey

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Figure3:Employment(FTEs)inBankingCentres(>5000)inBritain,1999-2014

Source:AnnualCensusofEmploymentandBusinessRegisterandEmploymentSurvey

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Figure4:ChangeinFinancialEmployment(FTEs)inLondonandBritain,1999-2014

Figure4a:ChangeinFinancialEmploymentinLondon

Figure4b:ChangeinFinancialEmploymentinBritain

Source:AnnualCensusofEmploymentandBusinessRegisterandEmploymentSurvey

Table1:ABriefInstitutionalHistoryoftheBankingCrisis,2007-2017

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Date KeyEvents2007 NorthernRockgrantedemergencyfundingbytheBankofEngland

PortmanBuildingSociety(BS)acquiredbytheNationwideBS

2008 NorthernRocktakenintopublicownership;governmentinvests£1.4billioninthecompanyUKFinancialInvestmentsLimited(UKFI)establishedwithresponsibilityformanagingtaxpayerinterestsinpublically-ownedbanksBradfordandBingleynationalisedwithitsbranchnetworkandretailcustomerssoldofftoSantanderandUKFImaderesponsibleforitsmortgageassetsBarclaysannouncesitwillraisecapitalfromsovereignwealthfundsAllianceandLeicesteracquiredbySantanderwhichhadin2004purchasedAbbeyNational,anothermortgagebankthathadbeenaformerbuildingsocietyRoyalBankofScotland(RBS)receivesstatesupport,andHalifaxBankofScotland(HBoS)takenoverbyLloydsTSBwithgovernmentsupport,andbothrecapitalisedTreasuryannouncesamajorrecapitalisationofthebankingsectorpurchasingTier1capitalineightinstitutions;£25bninsharesinvolvedanda£250bncreditguaranteeschemeIcelandbanksGlitnir,LandsbankiandKaupthingdefaultbadlyaffectingbuildingsocietiesthathaddepositedfundswiththem.TreasuryannouncesmeasurestoprotectdepositorsinIcelandicbanksNationwideBSacquirestheCheshireandDerbyshireBSs,BarnsleyacquiredbyYorkshireBS,ScarboroughacquiredbytheSkiptonBSandtheCatholicbyChelseaBS

2009 AssetProtectionSchemeannouncedtoprotectbanksfromfuturelosses;BankingActpassedtoimprovefinancialstability;QuantitativeEasingannouncedBritanniaBSacquiredbyCo-operativeFinancialServicesandbecomespartoftheCo-operativeBankDunfermlineBSacquiredbyNationwide

2010 NorthernRocksplitintoNorthernRockplcastandaloneretailbankandNorthernRockAssetManagement(NRAM).TheremainingmortgageassetsandloansofNorthernRockandBradfordandBingleysubsequentlybroughttogetherinUKAssetResolution(UKAR)ChelseaBSacquiredbytheYorkshireBS;StroudandSwindonbyCoventryBSandCheshambytheSkiptonBS

2011 KentRelianceBStransfersitsbusinessandassetstoOneSavingsBankownedbyJCFlowers,aUSprivateequityfirmNorwichandPeterboroughBSacquiredbytheYorkshireBSYorkshireBSpurchasesthesavingsandmortgagebookofEgg-oneofthefirstinternetbankssetupin1998-fromCitigroup,andBarclaysacquirestheircreditcardbusiness

2012 NorthernRockplcsoldtoVirginMoneyforbetween£863and£977m2012 £465mNRAMmortgagessoldtoVirginMoney2013 UKARsellsaportfolioofstandaloneunsecuredNorthernRockpersonalloanstoOneSavingsBankandMartin

FinancialGroupfor£400mTheTrusteeSavingsBank(TSB)re-establisheddivesting631branchesfromLloydsTSBtomeetEuropeanCommissionstateaidrequirements.InitiallyTSBremainedaseparateoperatingunitwithinLloydsandwassubsequentlyfloatedonthestockmarket.ThebranchesoriginatedfromTSB,aformersavingsbank

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establishedinScotlandandacquiredbyLloydsin1999,andtheformerCheltenhamandGloucesterbuildingsocietyacquiredbyLloydsin1995RBSunveilsplanstodivest308retailbranchesinastandalonebusinessoperatingundertheWilliamsandGlynbrandnametomeetEUstateaidconcerns.WilliamsandGlynnwasoriginallyestablishedin1970whenRBSmergedtwoofitssubsidiarybanksCo-operativeBankrescuedbyUShedgefundinvestorsfollowingafundingshortfalllargelycreatedbythedebtsoftheformerBritanniaBuildingSociety;theformerownerbecomesaminorityshareholderShepsheadacquiredbytheNottinghamBSandCenturyacquiredbyScottishBS

2014 RBS,aspartofanextensivestrategytoraisefundsandwithdrawfromriskyornon-coreventures,finalisesthesaleofitsinsurancearm,DirectLineGroupSaleof£2.79bnofNRAMresidentialmortgagestoconsortiumledbyJPMorganCityofDerryacquiredbyProgressiveBS

2015 Saleof£13bnofassetsfromNRAMannounced(salecompleted2016)including£12bnfromNorthernRockGranitesecuritisationand£1bnnon-GranitetoCerberusCapitalManagement,aUSprivateequityfirm,andCerberuspasseson£3.3bnofloanstotheTSB.Governmentreceived£520maspartofthesaleTSBacquiredbySabadellalargeSpanishbank

2016 Cerberuslaunchesasuccessfulsaleof£6.2bnofsecuritisedbondsbackedby80,000mortgagespurchasedfromNRAMUKARannounces7yrtransferofthemortgageservicingoperationsofNorthernRocktoComputersharecovering£30bnofNRAMassetsand1,700NRAMemployees;UKRA-retains250employeestomanagethebalancesheetsofNRAMandBradfordandBingley

2017 Co-operativeBankagainfinanciallyrestructuredafterthefailureofasaleandeffectivelyseversitsrelationshipwiththeCo-operativeGroupRBSannouncesthatgiventhelackofaseriousbuyerforWilliamsandGlynitwouldestablishmenta£425mfundtosupporttheexpansionofestablishedinstitutionsinthesmallbusinessmarket.Thecompanyalsoannounceda25%reductioninitsbranchnetwork,thelatestinaseriesofsuchclosureprogrammes,followinghardontheheelsofthewindingupofitsinternal‘badbank’oftoxicassets

2018 TSBsufferssignificantdisruptiontransferringcustomersfromaLloydsBankITplatformtoSabadellGovernmentannouncesthesaleofapproximately8%ofRBS’ssharesClydesdaleandYorkshireBankGroupannouncethetakeoverofVirginMoney.ThecombinedgroupwillultimatelytradeundertheVirginMoneybrand

Source:NationalAuditOffice(2012)TheCreationandSaleofNorthernRockplc,ReportbytheComptrollerandAuditorGeneral,HC20Session2012-13,May;Marshall(2013;2017);BuildingSocietiesAssociation;variouscompanypressreleasesandpressreports.

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Table2:TheChangingAnatomyofBanking:NewIncorporatedDomesticBanks,2009-2017

Bank Licensed Headquarters/Base Product/Market/Ownership

Aldermore 2009 Reading AcquisitionofRufflerBankprovidedabankinglicensetodevelopasmallandmedium-sized(SME)focusedbank.Take-overbyFirstRandSouthAfrica’slargestbankacceptedbytheboardin2017

AtomBank 2015 Durham LicenseddigitalbankfocusedonSMEs.SecuredinvestmentfromSpanishbankinggroupBBVAandBritishBusinessBankInvestmentsagovernmentownedentityinvestinginsmallbusinesses

Cambridge&CountiesBank 2012 Leicester Focusoncommercialandresidentialinvestment,bridgingfinanceandsecuredpensionlending.OwnedbyTrinityHallandCambridgeshireLocalGovernmentPensionScheme

CharterSavingsBank 2015 Wolverhampton Licensedon-lineretailbank,partofCharterCourtFinancialServicesLtd–buy-to-letmortgagesupplier

CivilisedBank 2017 Reading Proposedon-linebankforSMEs

ClearBank

2016 London AnewclearingbanktoprovidecustomersaccesstoUKpaymentsystemsandfacilitateinter-banktransfers

ChetwoodFinancialLimited 2017 Wrexham FinancialservicescompanygrantedabankinglicensesupportedbyinvestmentfromtheWelshgovernment

FirstGlobalTrustBank 2016 London AwholesalebankoriginallyestablishedasLlamabrookin2011.Bankinglicensecancelledafterwithdrawaloffinancialbacking

HampdenandCoplc 2014 Edinburgh PrivatebankincorporatingScobanon-linebanking

HampshireTrustBank 2015 London Re-launchofbankestablishedin1977specialisinginasset,commercial,andpropertyfinanceaswellasprovidingsavingsaccounts

Masthaven 2016 London Anonlinemortgagespecialistmovingintosavingsandloans.

Monzo

2017 London FormerlyMondo-offersasavingsaccountbasedonabankingapplication.Raisingfinancefollowingaprovisionalbankinglicense

MetroBank 2010 London Licensedconsumerandcorporatebranch-basedbank

OneSavingsBank

2011 ChathamKent Providessavings,loansandmortgages–formerKentReliantBuildingSociety,boughtoutbyJ.C.Flowers&Co.,aprivateequityinvestmentfirm.

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OakNorthBankLtd 2015 London LicensedbankfocusedonSMEsfinanceandproperty.IndiabullsHousingFinanceLimitedisamajorinvestor

ParagonBank

2014 Solihull Specialistlicensedbank–startedprovidingfinancialloansviabrokersandmovingintoretailsavings,loansandmortgages.PartofParagonGroupaprominentbuy-to-letlender

PCFBank 2016 London PartofPCFGanequipmentandvehiclehirecompanywhichisbroadeningitsrangeoffinancialservices

RedwoodBank 2017 Letchworth SME-focusedbankownedandfinancedbyAcornGlobalInvestment

ShawbrookBank 2011 Brentwood SpecialistSME-focusedretailandcommercialbank.PurchasedthebankinglicenceofWhiteawayLaidlawBank.In2017itwastakenoverbyBCPartnersandPollenStreetCapital

StarlingBank 2016

London Branchless/mobileretailbank;someofthemanagementteamdepartedtosetupMonzo

Tandem 2015 London On-linelicensedbankofferingcurrentaccounts,creditcardsandsavingsandloans.FormerlyRNMFinancialLimited;hadbankinglicensewithdrawnduetofundingproblemsbutrestoredin2017withtheacquisitionofHarrodsBank

Wyelands 2016 London FocusesonSMEs;formerlyTungstenbankwhichwasestablishedbyaninvoiceprocessingcompany.NowownedbyLibertyHousemetalsandindustrialgroup

Source:BankofEnglandlistofIncorporatedBanks;CompetitionandMarketsAuthority(2016)andwebsearch.Thetableexcludessubsidiariesofforeign-basedinstitutions.

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TABLE3:DefinitionsofBanks,BankingandtheFinancialSectorinBritain*

Industry SIC2003 SIC2007

FinancialIntermediation

(includingmonetaryintermediation,holdingcompanies,trustsandinvestment,venturecapital,othercreditandleasing)

65 64

Insurance

(includinginsurance,reinsuranceandpensions)

66 65

AuxiliaryServices

(administrationoffinancialmarkets,commoditycontractsandbrokerage,agents,brokers,fundmanagement)

67 66

MonetaryIntermediation-Banking(includingretailandinvestmentbanks,centralbanks,buildingsocieties)

65.1[=65.11+65.12] 64.1[=64.11+64.19]

CentralBanks 65.11 64.11

BanksandBuildingSocieties 65.12 64.19[=64.191+64.192]

Banks N/A 64.191

BuildingSocieties N/A 64.192

*DataforNorthernIrelandisnotavailableatthelevelofdisaggregationusedinthepaper

32