Strategies for market monopolisation: the Register of Co-operation and the Imperial Banks in South Africa, ca. 1920 – 1980

Literature › Works

Verhoef, Grietjie (n.d.). Strategies for market monopolisation: the Register of Co-operation and the Imperial Banks in South Africa, ca. 1920 – 1980.

Type	conference paper
Scope	Economics and economic history of apartheid
Method	archival narrative
Period studied	1793–1980s
Regions	South Africa, Cape Colony, Natal, Orange Free State, Transvaal
Themes	business and state, macro fiscal finance debt, politics ideology elections, sanctions divestment, comparative theory, manufacturing industrial policy
Citation key	verhoefnd

Argument

The paper argues that British imperial banks (Standard Bank, Barclays) brought stability to South African banking but also entrenched an oligopoly. Through a cartel that began with the 1912 General Managers' conferences, became the 1934 London Agreement and was later renamed the Register of Co-operation (ROCO), they fixed rates and charges and restricted entry. The cartel stabilised the sector in the interwar and early post-war years. It was used against Afrikaner-nationalist challenger Volkskas, and it could not adapt to the credit demands of the post-war boom. Competition from Volkskas, Trust Bank and Nedbank (the Netherlands Bank), together with direct-control regulation giving way to a market-oriented monetary policy after the De Kock Commission and with localisation of bank ownership, left the cartel unsustainable by the late 1970s and 1980s.

Evidence and method

Standard Bank Archives (minutes of General Managers' conferences, agency agreements, the London Agreement, Inter-Bank Standing Committee minutes), Barclays and Netherlands Bank archives, National Archives Treasury correspondence, Volkskas archives, SARB statistics, De Kock Commission reports (RP 70/1984 etc.), banking Acts, and secondary works (Arndt, Jones, Solomon, Jones & Müller, and the author's earlier studies).

Place in the debates

• Are cartels beneficial coordination devices or harmful restraints on competition? (see Finance, capital flight, the 1985 debt crisis and banking). Holds that the banking cartel was stabilising in the interwar period and after the Second World War, but then restricted entry and innovation, 'suffocating' growth until it was forced open.
• Gentlemanly capitalism and British imperial finance (Cain and Hopkins) (see Finance, capital flight, the 1985 debt crisis and banking). Describes the two imperial banks as the 'epitome of gentlemanly capitalism' in South Africa: cautious, collusive and slow to innovate.
• Direct monetary controls versus market-oriented monetary policy (see Finance, capital flight, the 1985 debt crisis and banking). Endorses the De Kock Commission view that direct controls drove disintermediation and distorted markets, making ROCO obsolete.

Findings

• The London Agreement/ROCO worked as an entry barrier protecting incumbent British banks. (p. 12)

  The scope of the London Agreement was in effect a restrictive practice which discouraged the entry of new banks.

• Cartel members used clearing-house access to exclude Afrikaner-nationalist Volkskas. (p. 12)

  After the establishment of VOLKAS in 1934, the London Agreement signatories refused clearing facilities to the bank, which was seen as nationalist Afrikaner competition.

• Collusion began with the 1912 managers' meeting, which was prompted by competitive pressure and bad loan controls. (p. 9)

  The General Managers of the SB, ABC and the NB met on 4 September 1912 and agreed to devise a strategy to curb excessive competition.

• Very high concentration of demand deposits by 1926, which fell as new banks such as Volkskas entered. (p. 12)

  In 1926 SB and the NB together held more than 90% of all demand deposits of all commercial banks in South Africa.

• The imperial banks dominated branch networks in 1945. (p. 15)

  SB and BB together had 631 branches across South Africa out of a total of 699 branches of commercial banks by 1945.

• Volkskas grew rapidly outside the cartel and became the real competitive threat. (p. 16)

  Volkskas’ proportion of total bank assets rose from 3,17 per cent in 1947 to 10.3 per cent ten years later.

• Nedbank's negotiable certificates of deposit (1964) broke the deposit-rate constraints of ROCO and forced rivals to follow. (p. 18)

  By 1964 the NBSA developed a new product, Negotiable Certificate of Deposit (NCDs) to attract funds.

• Financial services were the fastest-growing sector of the post-war economy. (p. 14)

  The financial sector increased its contribution to the GDP from 3,4% in the early 1960s to 11,9% by the end of the 1980s.

• Political and international pressure led to localisation of bank ownership in 1972. (p. 20)

  In 1972 the government required foreign shareholding in banks operating in South Africa to be reduced to 50% of total shareholding.

• By 1980 local challengers held a large share of deposits, undermining the cartel. (p. 20)

  By 1980 total deposits of Nedbank exceeded 10% of the total deposits of all the commercial banks, while Volkskas and TB jointly held 32% of total bank deposits.

• The De Kock Commission's market-oriented recommendations sealed the cartel's fate. (p. 21)

  The recommendations of the De Kock Commission were that a market oriented monetary policy needed to be implemented in order to remove artificial barriers to the operations of all financial institutions.

Evidence ledger

Sources used

Source	Kind	Period	How used
Standard Bank Archives (SBA), Minutes of Proceedings of Conferences of the General Managers of the South African Banks, 1912-1913	employer association records	1912-1913	Establishes the origin, content and enforcement problems of the early interbank rate and fee agreements (the precursor of the cartel).
SBA, London Agreement, 31 December 1934	employer association records	1934	Primary text of the cartel agreement, used for its scope and coverage and the mechanism for common policy.
SBA, General Manager's Office (GMO) private-official letters and Selected Correspondence with London office, 1930-1943	company records or reports	1912-1943	Used for the National Bank's rationale for collusion and cash ratio compared with Standard Bank.
SBA agency agreements with other banks (National Bank of OFS 1887; Natal Bank 1896; African Banking Corporation 1897)	company records or reports	1887-1897	Shows Standard Bank used its branch network through agency agreements with banks unable to reach remote areas.
SBA / Standard Bank Archives, Inter-Bank Standing Committee of ROCO Minutes, 1964-1973	employer association records	1964-1973	Documents compliance problems, hours of business, clearing charges and the cartel's decline in the 1960s and 1970s.
SAB Selected Correspondence GMO – Volkskas 1940-1947; Volkskas Archives, correspondence General Manager with Standard, Barclays and NBvZA	company records or reports	1940-1947	Shows repeated refusal of clearing facilities to Volkskas until admission in 1947.
Barclays Bank Archives (BBA): Barclays Bank Report – Banks' Clearing House, 1/03/41–31/12/47	company records or reports	1941-1947	Supports the account of imperial banks' stance on Volkskas and the clearing house.
National Archives of South Africa (NASA), Treasury (TES): Registrar of Banks – Volkskas letters and Volkskas admission to Clearing House	state archives	1945-1946	Documents BB's proposal of 12 September 1946 to admit Volkskas to the clearing house on condition of subscribing to ROCO.
Netherlands Bank (NBA) archives: Holsboer letter, Bespreking Algemeen Bestuur, NBSA Board minutes 1963-1970	company records or reports	1963-1970	Evidences NBSA's frustration with ROCO and introduction of negotiable certificates of deposit in 1964.
South African Reserve Bank Quarterly Statistics/Bulletin of Statistics, 1940-1947 (1957)	official statistical series	1940-1957	Source for Volkskas' deposit shares (savings, fixed, cheque deposits) relative to all commercial banks.
Volkskas Annual Reports, 1934-1950	company records or reports	1934-1950	Used with SARB statistics for Volkskas deposit growth shares.
T W de Jongh, An analysis of banking statistics in the Union of South Africa, 1910-1945	secondary literature compilation	1910-1945	Source for deposit contraction 1920-1932 and concentration of demand deposits in SB and NB.
Final Report of the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa (De Kock Commission), RP 70/1984	commission or official report	1984	Used for the oligopoly and non-market monetary policy, Banks Act categories, disintermediation and the recommendation to dissolve ROCO.
Reports of the De Kock Commission RP112/1978 (exchange rates) and RP93/1982 (building societies, financial markets)	commission or official report	1978-1982	Context for the inquiry timeline preceding the final report that recommended ending ROCO.
Banks Acts: Cape Bank Act 1891, Currency and Banking Act 1920, Banks Act No 38 of 1942, Banks Act 1965, Banks Act amendments 1972	legislation gazette	1891-1972	Traces regulatory framework in which the cartel operated and the categorisation of banks.
Report of the Technical Committee on Banking and Building Society Legislation, RP 50/1964	commission or official report	1964	Listed in references as background to banking legislation; Technical Committee argument that commercial banks create money.
Verhoef's own prior bank-history studies (Geskiedenis van Nedbank 1986; Volkskas/Trust Bank 1992; Concentration and competition 2009/2010)	secondary literature compilation	1945-2007	Source for Volkskas and Nedbank market-share figures, branch data and 1980 deposit shares.
S Jones (1996) The Great Imperial Banks in South Africa; Jones & Müller (1992) The South African Economy 1910-1990	secondary literature compilation	1861-1990	Used for branch counts, deposit concentration ratios and macro growth figures.
Arndt (1928) Banking and Currency Development in South Africa 1652-1927	secondary literature compilation	1652-1927	Source for numbers and capital of unit banks and imperial banks in the nineteenth-century Cape.

Inference

Quantification: Descriptive tables.

Archival narrative case study of the banking cartel (London Agreement/ROCO) built from bank-archive minutes and correspondence, supported by descriptive market-share and deposit ratios and commission reports; claims on competition and decline rest on chronological comparison and the author's interpretation.

Key claims

Claim	Basis	Strength
Collusive agreements among general managers from 1912 evolved into the 1934 London Agreement and later ROCO, fixing rates, fees and deposit ceilings. (p. 11)	SBA minutes of general managers' conferences 1912-1913 and the 1934 London Agreement text.	Systematic data
The London Agreement was used to entrench incumbents and exclude Volkskas, which was refused clearing facilities until 1947. (p. 12)	SBA and Volkskas correspondence 1940-1947, NASA Treasury letters, SARB deposit statistics.	Partial data
Standard and Barclays dominated deposits and branches (631 of 699 branches in 1945; 84% of demand deposits, 90.9% in 1953, 80.9% in 1961). (p. 15)	Figures from Jones (1996) and Verhoef (1986), secondary compilations of bank statistics.	Partial data
Volkskas rapidly gained market share after 1940 (deposits, savings, fixed deposits and advances), becoming a real competitive threat. (p. 13)	SARB Quarterly Statistics 1940-47, Volkskas annual reports and Verhoef's earlier studies.	Systematic data
NBSA's 1964 negotiable certificates of deposit and other innovations forced the imperial banks to compete and undermined ROCO. (p. 18)	NBSA board minutes and Holsboer correspondence in Netherlands Bank archives.	Partial data
Non-compliance, new banks, foreign-ownership rules and the De Kock Commission's market-oriented recommendations made ROCO unsustainable by the late 1970s-1980s. (p. 22)	Inter-Bank Standing Committee minutes, RP 70/1984, Banks Act amendments, 1980 deposit shares from Verhoef 1992.	Partial data
Imperial banks brought stability to the Cape banking system after the 1860s collapse of small unit banks and then dominated after 1920s takeovers. (p. 6)	Arndt (1928), Jones (1996, 1999) and Solomon (1983) for capital figures and takeovers.	Partial data

Gaps in the evidence

The argument that the cartel curbed competition and harmed the economy is not tested with price data: no systematic series of lending/deposit rates, margins or bank profits compared across cartel and non-cartel banks or with other countries. Market shares are drawn mainly from secondary compilations and the author's earlier books without full tables or consistent definitions, and the London Agreement and ROCO texts are only quoted in fragments. Full ROCO minute series, bank profit records, Registrar of Banks returns and SARB statistics exist in archives and could support a quantitative analysis of pricing and entry.

Replicability: Data described but not public.