Paper for presentation at Economic History Society Annual Conference, 28-30 March 2008, University of Nottingham Britain and the end of the first globalization: ‘financial crisis’, contagion and the British financial system authors



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8. Conclusions
Our conclusions are not revisionist, but we have provided a range of evidence on the joint-stock clearing banks, which counters assertions that the British financial system was at risk. There were many routes by which ‘contagion’ was transmitted to the British banking system and banks generally had to contend with many problems during the 1930s. But the system emerged intact, and we argue was not under serious threat, although some institutions suffered more than others. Withdrawals made by overseas depositors are accepted as having been significant in the 1931 exchange-rate crisis, although the evidence on the nature and extent of these withdrawals is unsatisfactory. But there is no evidence of a ‘domestic run’ on British banks.
The well-capitalised Big Five clearing banks, the result of the amalgamation process which was complete before 1920, survived well, with their extensive branch networks, strong earning power, and diversified and liquid balance sheets, in contrast, for example, to their German counterparts. Their alleged conservativeness, although exaggerated, allowed them to cope with their problems and avoid the fate of banks elsewhere. A variety of smaller and more specialised British institutions, the merchant banks with large exposures to German Standstill debt and discount houses, were effectively bankrupt, kept afloat by a mixture of owners’ capital, funding from the large clearing banks and the Bank of England, mergers and changes to market practice. The experiences of British banks operating internationally were mixed.
The Bank of England’s activities went beyond what the exercise of the LLR function would require. The Bank used its full range of powers and persuasion at home and abroad, and was active in supporting individual institutions but on a highly discriminatory basis. Overall, the results were consolidation around the periphery of the commercial (joint-stock clearing) banks, but with more fundamental change among the discount houses and merchant banks. The collapse of individual discount houses and accepting houses, while not in itself a threat to the British financial system as a whole, would have had a significant impact on the discount market, disrupting what was still the world’s major money market, used by international banks, which placed money at call with London discount houses. Such disruption would have been damaging for British trade, already under pressure from rising trade barriers and falling economic activity in many countries. The status of the City of London as a financial centre would also have been damaged. For these reasons the Bank chose to ensure the survival of these institutions, although its support was different in character to, and went beyond, that which a ‘pure’ LLR role would have demanded. The Bank was aided in various of its efforts by the large clearing banks, which were able, and usually willing, to offer assistance when called upon.
Financial and monetary stability underpin macroeconomic stability and there is evidence of that in Britain. The British economy, after a recession only for the years 1929-32, rather than deep depression, then went on to experience its strongest-ever upswing in the years 1932-7. Leaving the gold standard was of crucial importance, but the robustness of the financial system, due in large part to that of the clearing banks, was certainly one factor in protecting the real economy from undue suffering.

Acknowledgements
This paper draws on research undertaken as part of a project (‘Banks and Industrial Finance 1920-71’) financed by the ESRC, whose financial support the authors gratefully acknowledge (Award number R000236447 - co-investigators, Professor Michael Collins (University of Leeds) and Dr. Duncan Ross (University of Glasgow) ). The authors thank the archivists, past and present, of the major banks: Maria Sienkiewicz and Jessie Campbell (Barclays); Karen Sampson and Dr. John Booker (Lloyds TSB); Edwin Green and Tina Staples (HSBC); Philip Winterbottom (Royal Bank of Scotland); and Fiona Maccoll (formerly of National Westminster). A preliminary version of this paper was presented at the Association of Business Historians Conference, Queen Mary, University of London, June 2006 and we thank participants for their comments.


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Table 1: Banks’ Standstill exposures, 1931-39


bank

German Standstill

1931

£000s

German Standstill

1939

£000s

Hungarian Standstill

1931

£000s

Austrian Standstill

1931

£000s

source

clearing banks
















Barclays

4,232

3,300

92 1

45 1

Barclays, 1262/58, 200/10; Tuke and Gillman, 1972, p.39

Lloyds

1,988

438

n/a

n/a

Lloyds, HO/GM/OFF/28/2

Martins

n/a

242

n/a

n/a

Barclays, 38/576 (Martins Board Minutes, 7 November 1939)

Midland

3,300

2,750

69

112

Holmes and Green, 1986, pp. 186-7; HSBC: O252/075 and O252/082

National Provincial

1,280

-

n/a

n/a

‘unofficial figures’, Lloyds, HO/GM/OFF/28/2

Westminster

2,779

3,034 2


177

200 3

RBS, WES/1174/187; 1939: RBS, WES/1177/102; Austria: RBS, WES/114/120

Williams Deacons’

58

n/a

n/a

n/a

RBS, WD/50/6



















clearing banks’ international subsidiaries
















Barclays DCO

575

390 3

n/a

n/a

Barclays, 11/1831 and 80/665

Lloyds and National Provincial Foreign Bank

n/a

800 4

n/a

n/a

Lloyds, 1469

Westminster Foreign Bank

1,021

- 2

n/a

n/a

RBS, WES/1174/187



















other banks
















British Overseas Bank

n/a

> 1,500 7

n/a

n/a

Forbes, 2004, p.240

Hongkong Bank

450 8

n/a

n/a

n/a

King, 1988, pp. 485-6

acceptance houses
















Barings

1,120

562

108

n/a

Orbell, 1985, pp.78-9

F. Huth & Co. 5 6

853

n/a

235

132

Forbes, 2004, p.240

Kleinwort and Sons

9,300

4,400 5

n/a

n/a

Diaper, 1986, pp. 68, 72

Schroders

4,900

n/a

n/a

n/a

Roberts, 1992, p.264
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