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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Table 13: Clearing banks’ bad debt experience, 1920-39
Table 13a: Bad debt charge - net new provisions as percentage of year-end advances





1920-29 average

1930-39 average

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939








































Barclays

0.5

0.3

0.6

0.6

0.7

0.3

0.3

0.2

0.0

0.1

0.1

0.5

Lloyds

0.3

0.2

0.4

0.5

0.6

0.1

0.0

0.1

0.1

0.0

0.0

0.1

Martins

0.4

0.8

0.6

0.6

2.2

1.7

1.7

0.4

0.0

-0.2

-0.2

1.0

Midland

0.6

0.5

0.3

0.3

0.4

0.6

1.4

0.7

0.5

0.4

0.2

0.3

National Provincial

0.4

0.8

1.4

1.1

0.3

0.6

0.7

n/a

n/a

n/a

n/a

n/a

Westminster

0.6

0.5

1.0

0.9

0.6

0.4

0.0

0.0

0.0

0.9

0.6

0.9

negative figures indicate provisions no longer required exceed new provisions


Table 13b: Total bad debt provisions as percentage of year-end advances





1920-29 average

1930-39 average

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939








































Barclays

1.7

3.1

2.7

2.9

3.9

4.0

4.0

3.9

3.1

2.8

2.7

1.5

Martins

3.6

6.6

5.0

5.0

9.7

11.5

7.9

7.4

5.3

4.8

3.9

5.1

Midland

2.7

4.0

3.7

4.0

n/a

4.5

4.6

4.2

3.9

3.7

3.9

3.6

National Provincial

3.2

4.0

3.5

4.3

4.9

5.5

5.7

n/a

n/a

3.0

2.6

2.1

Westminster

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

5.2

no data available for Lloyds



Table 13c: Bad debt write-offs - amount written off as percentage of year-end advances





1920-29 average

1930-39 average

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939








































Barclays

0.5

0.4

0.4

0.8

1.1

0.2

0.2

0.3

0.7

0.2

0.2

0.2

Westminster

n/a

0.5

n/a

0.4

0.3

1.2

0.5

0.3

0.1

0.4

0.8

0.3

no data available for other banks


source: authors’ calculations from archival sources [detailed references to be inserted]


1 Austria £1.2 million and Hungary £5.5 million at the end of 1931 (RBS, WES/1174/120).

2 Barclays, for example, held £750,000 in Treasury Bills issued by the states of Hamburg and Bremen, covered by the Public Debtors Credit Agreement from April 1932 (Barclays, 200/10, 2 May 1932). Westminster Foreign Bank held $1m State of Bavaria Treasury bonds, included in the Standstill from 1935 (RBS, WES/1174/187 and 248). Midland’s exposures to German banks outside the Standstill amounted to £615,000 at its inception (Forbes, 2000, p.41), reduced to £534,000 by March 1938 (HSBC, O252/074).

3 But such suggestions may have been well-founded (Forbes, 2000, p.33). Wake (1997, p.243) suggests that Kleinworts had been ‘... borrowing in Paris at cheap short-term rates of 2 per cent and lending to Germany at long-term rates as high as 8 per cent ...’.

4 ‘The key to the re-establishment of Schröders and Kleinworts as the leading firms of the 1920s was their strong German client base, just as it was the source of their problems from 1931’ (Roberts, 1992, p.188). Roberts (1992, pp. 189-200) details Schroders’ much broader central European business in the 1920s.

5 For a more general discussion of the activities of merchant banks see Roberts (1993), as well as the corporate histories of individual banks such as Burk (1989) and Roberts (1992).

6 Kleinworts also held £2.7 million of German municipal loans (Wake, 1997, p.243), which increased the ratio to four times capital (Forbes, 2000, p.41).

7 Lazards was ‘virtually bankrupted by its exposure to Germany’ (Forbes, 2000, p.40).

8 A discount of around 50 per cent to the face value of debt was found in 1935, widening to 80 per cent by the outbreak of war in 1939. REF NEEDED The discount fluctuated with political and economic developments. For example, Young bonds traded at 28 in June 1932 but had recovered to 60 by January 1933 (Roberts, 1992, p.258).

9 The liquidation of German debt provided a business opportunity for the merchant banks. For example, Schroders’ joint venture with Hambros, Anglo-Foreign Securities, specialised in such business (Roberts, 1992, p.258).

10 These countries combined had a similar exposure as Britain to Standstill debt in 1931 (Forbes, 2000, p.194, Table 9).

11 Much of this loss was realised close to the outbreak of war: a schedule dated 21 June 1939 showed that: ‘A total NET loss of £461,851 was made in the liquidation of liabilities £899,477 - 51% approximately’ (Lloyds, HO/GM/OFF/27/2).

12 Examples of such lending include a £1 million revolving credit provided by Hambros to IG Farbenindustrie in 1934 (Forbes, 2000, p.169) and £330,000 lent by Kleinworts to Friedrich Krupp in 1939 (Wake, 1997, p.255). Diaper (1986, p.64) notes that ‘Kleinworts had renewed credits for Krupps as late as August 1939’ and was owed £386,000 of Standstill debt by IG Farbenindustrie at the end of World War Two (Diaper, 1983, p.249, footnote 81).

13 There were clear differences in the interests of, for example, the predominantly American bondholders, with different tranches of debt denominated in different currencies, commercial creditors and the British banks. For a recent analysis of the complex London Debt Agreement and the conflicting interests of different categories of creditors see Guinnane (2004).

14 Clearing arrangements came close to being imposed in both 1934 and 1938 (Forbes, 2000, pp. 86-90, 117-21).

15 According to Clay (1957, p.385), ‘The Committee of London Clearing Bankers were willing to help the Bank by providing commercial bills to serve as security for credits, but preferred a New York to a Paris credit, unless credits could be raised in both quarters’.

16 Howson’s estimate of total UK gold and foreign exchange reserves at the same date, which includes Treasury holdings, is £210 million (Howson, 1980, p.80, Table 3).

17 Insurance companies also acquired large quantities of British government debt in the period 1931-4 (Scott, 2002, p. 85, Table 1).

18 As asset structures became more liquid, so capital ratios fell - a development mirrored in other countries (Grossman, 2006).



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