Banks, Industry and Finance, 1880-1914

This article uses contemporary business records to provide the first authoritative empirical breakdown of the general characteristics of English commercial bank lending to industrial firms in the three and a half decades before the First World War. The results confirm that the bulk of commercial bank support for industry was in the form of short-term credit. In particular, the overdraft system was operated in such a way as to provide industrial concerns with an readily accessible and flexible means of meeting cash flow and working capital requirements. A sizeable proportion of such loans required the deposit of no tangible security although over time this proportion declined. There were important differences in terms of collateral requirements demanded of private partnerships and limited companies, with the latter having to provide additional security to cover their limited liability status. In terms of the degree of bank involvement in the finance of industry a significant finding is that the commercial banks did lend to finance industrial fixed capital investment and, though most loans were short-term, about one-fifth were lent for two or more years through the rolling-over of short period loans.