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

Download 357.92 Kb.
Size357.92 Kb.
1   2   3   4   5   6   7

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.

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.

Primary sources
Barclays Bank PLC, Group Archives, Manchester (referred to as ‘Barclays’): Barclays Bank, Martins Bank.

HSBC Holdings plc, Group Archives, London (referred to as ‘HSBC’): Midland Bank.

Lloyds TSB plc, Group Archives, London (referred to as ‘Lloyds’): Lloyds Bank.

The Royal Bank of Scotland Group plc, Group Archives, London (referred to as ‘RBS’): District Bank, National Provincial Bank, Westminster Bank.

Secondary sources
Ackrill, M. and L. Hannah (2001), Barclays: The Business of Banking 1690-1996, Cambridge: Cambridge University Press.

Atkin, J. (1970), ‘Official Regulation of British Overseas Investment, 1914-1931’, Economic History Review, Vol. 23, No. 2, pp. 324-335.

Baker, M. and M. Collins (1999), ‘Financial Crises and Structural Change in English Commercial Bank Assets, 1860-1913’, Explorations in Economic History, Vol. 36, pp. 428-44.

Balderston, T. (1991), ‘German Banking between the Wars: The Crisis of the Credit Banks’, Business History Review, Vol. 65, No. 3, pp. 554-605.

Balderston, T. (1994), ‘The Banks and the Gold Standard in the German Financial Crisis of 1931’, Financial History Review, Vol. 1, pp. 43-68.

Beenstock, M., F.H. Capie and B. Griffiths (1984), Economic Recovery in the United Kingdom in the1930s, Bank of England Panel Paper No. 23.

Billings, M. and F.H. Capie (2007), ‘Capital in British Banking 1920-1970’, Business History, Vol. 49, No. 2, pp. 139-162.

Bordo, M.D. (ed.) (1992), Financial Crises, 2 Vols., Aldershot: Edward Elgar.

Bordo, M.D., E.U. Choudri and A.J. Schwartz (2002), ‘Was Expansionary Monetary Policy Feasible During The Great Contraction? An Examination of the Gold Standard Constraint’, Explorations in Economic History, Vol. 39, January, pp. 1-28.

Born, K.E. (1983), International Banking in the 19th and 20th Centuries, Leamington Spa: Berg.

Burk, K. (1989), Morgan Grenfell 1838-1988: The Biography of a Merchant Bank, Oxford: Oxford University Press.

Calomiris, C.W. (2008), ‘Bank Failures in Theory and History: The Great Depression and Other “Contagious” Events’, forthcoming in A. Berger, P. Molyneux and J. Wilson (eds.) (2008), The Oxford Handbook of Banking, Oxford: Oxford University Press.

Capie, F.H. (2002), ‘The Emergence of the Bank of England as a Mature Central Bank’ in D. Winch and P.K. O’Brien (eds.) (2002), The Political Economy of British Historical Experience, 1688-1914, Centenary British Academy Volume, Oxford: Oxford University Press.

Capie, F.H. and M. Billings (2001a), ‘Accounting Issues and the Measurement of Profits - English Banks -1920-68’, Accounting, Business & Financial History, Vol. 11, No. 2, pp. 225-51.

Capie, F.H. and M. Billings (2001b), ‘Profitability in English Banking in the Twentieth Century’, European Review of Economic History, Vol. 5, No. 3, pp. 367-401.

Capie, F.H. and M. Billings (2004), ‘Evidence on Competition in English Commercial Banking 1920-70’, Financial History Review, Vol. 11, No. 1, pp. 69-103.

Capie, F.H., T.C. Mills and G.E. Wood (1986), ‘What Happened in 1931?’, in Capie and Wood (eds.), pp. 120-48.

Capie, F.H. and A. Webber (1985), A Monetary History of the United Kingdom, 1870-1982: Volume 1 Data, Sources, Methods, London: George Allen & Unwin.

Capie, F.H. and G.E. Wood (eds.) (1986), Financial Crises and the World Banking System, New York: St. Martin’s Press; Basingstoke: Macmillan.

Clay, H. (1957), Lord Norman, London: Macmillan.

Cleaver, G. and P. Cleaver (1985), The Union Discount: A Centenary Album, London: The Union Discount Company.

Collins, M. (1989), ‘The Banking Crisis of 1878’, Economic History Review, Vol. 42, No. 4, pp. 504-27.

Collins, M. (1998), ‘English Bank Development Within a European Context, 1870-1939’, Economic History Review, Vol. 51, No.1, pp. 1-24.

Collins, M. and M. Baker (2001a), ‘English Commercial Bank Liquidity, 1860-1913’, Accounting, Business & Financial History, Vol. 11, No. 2, pp. 171-91.

Collins, M. and M. Baker (2001b), ‘Sectoral Differences in English Bank Asset Structures and the Impact of Mergers, 1860-1913’, Business History, Vol. 43, No. 4, October 2001, pp. 1-28.

Committee on Finance and Industry (1931), Report, Cmnd. 3897, London: HMSO (‘Macmillan Report’).

Crafts, N. (2004), ‘Long-run Growth’, pp.1-24 in R. Floud and P. Johnson (eds.) (2004).

Diaper, S.J. (1983), ‘The History of Kleinwort, Sons & Co. in Merchant Banking 1835-1961’, PhD thesis, University of Nottingham.

Diaper, S.J. (1986), ‘Merchant Banking in the Inter-War Period: The Case of Kleinwort, Sons & Co.’, Business History, Vol. 28, No. 4, pp. 55-76.

Feinstein, C.H. (1976), Structural Tables of National Income, Expenditure and Output of the United Kingdom 1855-1965, Cambridge: Cambridge University Press.

Feinstein, C.H., P. Temin and G. Toniolo (1997), The European Economy Between The Wars, Oxford: Oxford University Press.

Fletcher, G.A. (1976), The Discount Houses in London: Principles, Operations and Change, London and Basingstoke: Macmillan.

Floud, R. and P. Johnson (eds.) (2004), The Cambridge Economic History of Modern Britain, Vol. II: Economic Maturity, 1860-1939, Cambridge: Cambridge University Press.

Forbes, N. (1987), ‘London Banks, the German Standstill Agreements, and “Economic Appeasement” in the 1930s’, Economic History Review, Vol. 40, No. 4, pp. 571-87.

Forbes, N. (2000), Doing Business with the Nazis: Britain’s Economic and Financial Relations with Germany, 1931-1939, London: Frank Cass.

Forbes, N. (2004), ‘The City, British Policy and the Rise of the Third Reich 1931-1937’, pp. 236-54 in R. Michie and P. Williamson (eds.) (2004), The British Government and The City of London in the Twentieth Century, Cambridge: Cambridge University Press.

Friedman, M. and A.J. Schwartz (1963), A Monetary History of the United States 1867-1960, Princeton: Princeton University Press.

Grossman, R.S. (1994), ‘The Shoe That Didn’t Drop: Explaining Banking Stability During the Great Depression’, Journal of Economic History, Vol. 54, No. 3, pp. 654-82.

Grossman, R.S. (2006), Other People’s Money: The Evolution of Bank Capital in the Industrialized World, Wesleyan Economics Working Paper No. 2006-020.

Guinnane, T.W. (2004), Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement, New Haven, CT: Yale University, Economic Growth Center, Discussion Paper 880.

Harris, C.R.S. (1935), Germany’s Foreign Indebtedness, London: Oxford University Press.

Hatton, T.J. (2004), ‘Unemployment and the Labour Market, 187-1939’, pp.344-373 in R. Floud and P. Johnson (eds.) (2004).

Holmes, A.R. and E. Green (1986), Midland: 150 Years of Banking Business, London: B.T.Batsford.

Howson, S. (1980), ‘The Management of Sterling 1932-39’, Journal of Economic History, Vol. 40, No.1, pp. 53-60.

James, H. (1984), ‘The Causes of the German Banking Crisis of 1931’, Economic History Review, Vol. 37, No .1, pp. 68-87.

James, H. (1992), ‘Financial Flows across Frontiers during the Interwar Depression’, Economic History Review, Vol. 45, No. 3, pp. 594-613.

James, H. (2001), The End of Globalization: Lessons from the Great Depression, Cambridge, Mass.: Harvard University Press.

Jones, G. (1993), British Multinational Banking 1830-1990, Oxford: Oxford University Press.

King, F.H.H., with C.E. King and D.J.S. King (1988), The Hongkong Bank Between the Wars and the Bank Interned, 1919-1945: Return From Grandeur, Volume III, Cambridge: Cambridge University Press.

Kunz, D.B. (1987), The Battle for Britain’s Gold Standard in 1931, Beckenham, Kent: Croom Helm

Kynaston, D. (1999), The City of London: Volume III, Illusions of Gold 1914-1945, London: Chatto and Windus.

Lloyds Bank (1932), Proceedings of Annual General Meeting, Chairman’s Statement, London: Lloyds Bank Limited.

Munn, C.W. (1988), Clydesdale Bank: The First 150 Years, London and Glasgow: William Collins, Sons and Co. Limited.

Neal, L. (1979), ‘The Economics and Finance of Bilateral Clearing Agreements: Germany, 1934-8’, Economic History Review, Vol. 32, No. 3, pp. 391-404.

Newton, L. (2003), ‘Government, the Banks and Industry in Inter-war Britain’, in Gourvish, T. (ed.) (2003), Business and Politics in Europe, 1900-1970: Essays in Honour of Alice Teichova, Cambridge: Cambridge University Press.

Orbell, J. (1985), Baring Brothers & Co., Limited. A History to 1939, London: Baring Bros. & Co., Limited.

Richardson, G. and P. Van Horn (2007), ‘Fetters of Debt, Deposit or Gold During the Great Depression? The International Propagation of the Banking Crisis of 1931’, NBER Working Paper 12983, Cambridge, Mass: National Bureau of Economic Research.

Roberts, R. (1992), Schroders: Merchants & Bankers, London and Basingstoke: Macmillan.

Roberts, R. (1993), ‘What’s in a Name? Merchants, Merchant Bankers, Accepting Houses, Issuing Houses, Industrial Bankers and Investment Bankers’, Business History, Vol. 35, No. 3, pp. 22-38.

Roberts, R. (1995), ‘The Bank of England and the City’, ch.6, pp. 152-84 in R. Roberts and D. Kynaston (eds.) (1995), The Bank of England: Money, Power and Influence 1694-1994, Oxford: Oxford University Press.

Ross, D.M. (1996), ‘Commercial Banking in a Market-oriented Financial System: Britain Between the Wars’, Economic History Review, Vol. 44, No.2, pp. 314-35.

Saville, R. (1996), Bank of Scotland, A History, 1695-1944, Cambridge: Cambridge University Press. Edinburgh: Edinburgh University Press.

Sayers, R.S. (1976), The Bank of England 1891-1944, 3 volumes, Cambridge: Cambridge University Press.

Scammell, W.M. (1968), The London Discount Market, London: Elek Books Limited.

Schubert, A. (1991), The Credit-Anstalt Crisis of 1931, Cambridge: Cambridge University Press.

Schwartz, A.J. (1986), ‘Real and Pseudo-Financial Crises’ in Capie and Wood (eds.), pp. 11-31.

Scott, P. (2002), ‘Towards the ‘Cult of the Equity’? Insurance Companies and the Interwar Capital Market’, Economic History Review, Vol. 55, No. 1, pp. 78-104.

Sheppard, D.K. (1971), The Growth and Role of UK Financial Institutions 1880-1962, London: Methuen & Co.

Truptil, R.J. (1936), British Banks and the London Money Market, London: Jonathan Cape.

Tuke, A.W. and R.J.H. Gillman (1972), Barclays Bank Limited 1926-1969, London: Barclays Bank Limited.

Wake, J. (1997), Kleinwort Benson: The History of Two Families in Banking, Oxford: Oxford University Press.

Williams, D. (1963), ‘London and the 1931 Financial Crisis’, Economic History Review, Vol. 15, No. 3, pp. 513-28.

Williams Deacon’s (1971), Williams Deacon’s 1771-1970, Manchester: Williams Deacon’s Bank Limited.

Williamson, P. (1992), National Crisis and National Government: British Politics, the Economy and Empire, 1926-1932, Cambridge: Cambridge University Press.

Winton, J.R. (1982), Lloyds Bank 1918-1969, Oxford: Oxford University Press.
Table 1: Banks’ Standstill exposures, 1931-39


German Standstill



German Standstill



Hungarian Standstill



Austrian Standstill




clearing banks




92 1

45 1

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






Lloyds, HO/GM/OFF/28/2






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






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

National Provincial





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



3,034 2


200 3

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

Williams Deacons’





RBS, WD/50/6

clearing banks’ international subsidiaries

Barclays DCO


390 3



Barclays, 11/1831 and 80/665

Lloyds and National Provincial Foreign Bank


800 4



Lloyds, 1469

Westminster Foreign Bank


- 2



RBS, WES/1174/187

other banks

British Overseas Bank


> 1,500 7



Forbes, 2004, p.240

Hongkong Bank

450 8




King, 1988, pp. 485-6

acceptance houses






Orbell, 1985, pp.78-9

F. Huth & Co. 5 6





Forbes, 2004, p.240

Kleinwort and Sons


4,400 5



Diaper, 1986, pp. 68, 72






Roberts, 1992, p.264

Share with your friends:
1   2   3   4   5   6   7

The database is protected by copyright © 2020
send message

    Main page