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English industrial distress before 1914 and the response of the banks

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  • Baker, Mae
  • Collins, Michael

Abstract

Internal bank archives are used to examine the nature of English bank/firm relationships during periods of business distress in the decades before 1914. The performance of the banks is examined in the context of theoretical assertions regarding relationship and transaction banking and bank response to the problems of adverse selection and moral hazard. New estimates of bank losses on industrial accounts are made. The results indicate that the banks supported their industrial clients during periods of distress by continuing with existing loans but rarely became deeply involved with clients' business. Effective screening of loan applications, the use of short-term loans and of sample collateral stipulations safeguarded against moral hazard and minimised losses for the banks, even with such high risk accounts.

Suggested Citation

  • Baker, Mae & Collins, Michael, 1999. "English industrial distress before 1914 and the response of the banks," European Review of Economic History, Cambridge University Press, vol. 3(1), pages 1-24, April.
    • Handle: RePEc:cup:ereveh:v:3:y:1999:i:01:p:1-24_00
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    Cited by:

    1. Baker, Mae & Collins, Michael, 1999. "Financial Crises and Structural Change in English Commercial Bank Assets, 1860-1913," Explorations in Economic History, Elsevier, vol. 36(4), pages 428-444, October.
    2. Jansson, Walter, 2018. "Stock markets, banks and economic growth in the UK, 1850–1913," Financial History Review, Cambridge University Press, vol. 25(3), pages 263-296, December.
    3. Sánchez-Ballesta, Juan Pedro & Lloréns, Mercedes Bernal, 2010. "Monitoring, reputation and accountability in issuing banks in mid-nineteenth-century Spain," Explorations in Economic History, Elsevier, vol. 47(4), pages 403-419, October.

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