International Managements of Liquid Assets by the London Major Clearing Banks and Profits in the Early Twentieth Century

Abstract

The aim of this article is to investigate the early 20^<th> century London Major Clearing Banks' international liquidity management; to estimate their profits; and to clarify the position of the rentier-state's overseas business in banking management at the height of the British Empire. C. Goodhart, the most influential scholar on this topic, 'emphasized the banks' overriding concern for liquidity, with their concentration of the short end of the London (international) money market'. Over the past few decades, a number of studies including "Rentner-staat' Imperialism', 'Condemnation of Banks' lending policy against British industry', and 'Gentlemanly Capitalism' have supported his position. The assumption was widely accepted that, though based in industrial districts, the British Major Banks preferred international managements in the London money market to domestic lending to industrial companies and the liquidity problems that resulted. However, few attempts have been made to research the actual scale and feasures of the Clearing Banks' operations or the ratio of their profits to aggregate profits in banking. These are, however, essential to judge the extent to which the London Major Banks depended on international managements in the London money market relative to domestic industrial finance. The following are the results of an analysis of the banking business based on the internal records of the top three pre-WWI banks in the U.K., Westminster Bank, Midland Bank, and Lloyds Bank, with an especial focus on Lloyds, the largest and the one with its origins in an industrial district. First, during the years of greatest overseas investment (1908-1913), the highest ratio of overseas investment to total bank assets was only 5-6%, and the figure decreased year by year. Second, the Banks did not make large-scale purchases or sales of overseas investments. Third, they underwrote only a tiny amount of overseas investment and earned little commission from it. Fourth, the real ratio of international managements in liquid assets to total Bank assets was only about 17 percent. Finally, the ratio of profits earned from international managements on liquid assets to total gross Bank profits was only about 20-30 percent. These facts suggest that, contrary to conventional views, major banks kept overseas investments and other international managements of liquid assets at a certain distance even in the golden age of overseas investment.