English commercial banks and business client distress, 1946–63

The article examines the behaviour of two leading English clearing banks, the Midland and Westminster, during periods of financial distress suffered by a sample of business clients during the early postwar decades. Such periods provide valuable insight into the nature of bank–business relationships at that time for, in a sense, bank reaction during periods of financial difficulty for client firms helps define the limits to bank support and commitment to such firms. The article examines the banks' behaviour within the context of a transaction bank model (as opposed to what might be termed a relationship bank model) and the results are compared with those of an earlier study by the authors of pre-First World War bank practice. The results show that the banks did operate many of the control mechanisms associated with transaction banking and that the proficiency of such controls ensured that the banks' interests remained reasonably secure even for the high risk loans under study. Importantly, however, the evidence also shows that the banks did not exercise a stark choice between, on the one hand, supporting clients while relying upon traditional control mechanisms, and, on the other, withdrawing support. In a significant number of cases, the banks were prepared to invest in gathering more information on a client's business, and in trying to influence the direction of that business. This suggests a more informed and interventionist approach by the banks in these cases compared to the findings in the pre-1914 study. For the sample of cases examined, it seems that while much of the behaviour of the two banks remained consistent with the transaction bank model, compared to our pre-1914 findings there was also a greater tendency towards a more flexible, ‘hands-on’ approach in extremis. In these cases, English bank behaviour was similar in some respects to that of the more interventionist European banks, and less like that predicted by the transaction bank model.