The Role of Banks in the Finance of the West Yorkshire Wool Textile Industry, c. 1780–1850

The view of early British commercial banks as almost exclusive suppliers of short-term accommodation loans is further diminished by Dr. Hudson's intensive research in the surviving records of banks operating in the expanding wool manufacturing district of West Yorkshire from the turn of the century to the 1840s. By means primarily of the overdraft expedient, private banks and, after they were permitted by law, joint-stock banks, routinely made nominally short-term loans for such long-term capital purposes as construction of new plants and replacement of obsolete machinery. No laws and frequently little practical business acumen governed policies with respect to posting of collateral, holding of bank reserves against deposits, ratio of overdrafts to the borrower's level of profits, or even the special privileges granted stockholders and directors. It thus was not institutional rigidities that drove British investors to prefer overseas opportunities, Hudson theorizes, but the sheer excess of long-term capital sources, of which banks were an important one, in relation to opportunities to use them. Most striking, however, is the slowness with which old business habits gave way to new practices more appropriate to the maturing of a system of industrial finance.