Chapter 1 : BUILDING HOMES FIT FOR HEROES
IN THE 1930s.
The Position of the Banks in the Building Boom
The banks did not, nor did they wish to, take advantage of the increase in prosperity and the lowering of money rates to undertake the role the building societies had assumed in being the principal suppliers of home loans. In contrast
to the building societies, throughout the 1930s the big five banks had shown steady as opposed to spectacular growth, but they were slow to benefit from the recovery in the economy and the low cost of money. In December 1929 rates
were 5.5 per cent and by 1933 they had come down to 2 per cent, where they were to remain until 1951 apart from a hiccup on the outbreak of the war in 1939. The low rates of interest made it worthwhile for borrowers to repay loans
fixed at higher rates in the previous decade and the recession limited the need for money, as did the financial uncertainty which still existed. For companies there was also the possibility of raising money through the stock market
(46). Foreign industrial companies coming into England would fund their operations from their home base without resorting to British banks. The limited demand for money in the capital markets is illustrated in the accounts of Lloyds
Bank. They show that in December 1929 the advances stood at £204 millions, four years later in December 1933 they were at ,104 millions, a drop of 50 per cent. Deposits only rose in the four years by 3 per cent, but investments held
by the bank increased substantially from £37 millions to £99 millions in the same period as a result of the fall in Wall Street and the subsequent recovery in the stock markets.
Post-war research into the affairs of the banks in the inter-war period has shown that the banks made hidden profits which would, if they had been revealed, have increased their published profits considerably (47). The banks used exemptions under a series of Companies Acts until 1969, which allowed them not to publish details of their total profits. In spite of the lower profits shown in their accounts, the Midland Bank in 1935 still paid a dividend of 16 per cent. The hidden profits may also have contributed to the banks' caution over lending when they knew that they had an assured profit flow from hidden profits. The banks justified the creation of what were hidden reserves in addition to their disclosed reserves, which were in the order of 6 per cent, so as to increase the strength of their balance sheets at a time of bank failures in America and in France and Germany. American banks were failing in great numbers. In August 1931 the Daily Telegraph noted that the number of failures this year 'probably exceeds last year's record of 1,345 with liabilities of close upon $200,000,000.' The article went on to say that 'Britain, it is pointed out, has been passing through a period of post-war depression even more severe than that in America yet has been free from bank failures' (48).
In addition to the hidden profits, there were very heavy amounts set aside in premises accounts, contingencies and conservative write-downs of bad or doubtful debts. There was also a note on the top of the balance sheets of Lloyds and Midland Bank that was uncalled capital, which implies that some of their shareholders' funds were not drawn down into the business and were still in reserves. The usually high increases to stated reserves were known of by the Bank of England (49). Not withstanding the strong financial position of the banks at this time and the fact that they increased the number of personal savings accounts by about 18 per cent, they were not prepared to lend to prospective home buyers (50). They would lend on property as security for other borrowing purposes but not for house purchase.
The British clearing banks almost never lent for the purpose of home-ownership except on a short-term bridging basis (51). In interviews with Jessie Campbell, the senior archivist of Barclays Bank which took place between December 1992 and February 1993 and with Edwin Green the historian of Midland Bank at the same time, questions were asked to discover why this policy existed (52). The reason appears to be that long-term loan commitments were an area of business they preferred to leave to the building societies. Mortgage lending is usually for a long-period of time, say twenty five years, while bank lending in England has historically been for a shorter term, say five years. It would have been possible for banks to lend for house purchase, but repayments over a short term would have been prohibitively high. The instructions to staff issued by Barclays Bank on priorities for lending to be taken during the years 1935 and 1936 do not give any guidance on the attitude to be taken in respect to home loans (53). The banks have historically only dealt with those who held accounts, and until recently they did not advertise for the purpose of increasing their retail business. The working classes in the 1930s were not holders of bank accounts, and therefore the banks did not consider them customers whose needs they served.
Barclays had a firm policy of control from the centre, more so than the other banks, and directives were written to local directors on all policy matters. Copies of two letters from Barclays head office in Lombard Street to all directors of local branches in 1936 were sent out when it was felt that the building boom was over, are shown overleaf. This would have coincided with the release of figures by the Board of Trade which showed 'the decline in the number of houses with a rateable value of less than £78 [this would effectively have been almost all houses] recorded as being completed during the six months ended 30 Sept 1935 not only below the record for the previous six months but also the corresponding period for the year before, [which] came as a surprise' (54). The slow-down was also the result of a temporary over-supply. In 1934 the numbers of houses built had been 210,000 as against 144,000 the previous year, therefore building 287,500 houses in 1935 would have caused a temporary surplus in some areas.
Another major reason why the banks were not in a position to compete with the societies was that they did not have a branch network comparable to the network of agents who were working for the building societies in taking deposits and making mortgage proposals. Banks have rarely allowed others to act on their behalf. They have always sought to control their affairs in order to enhance the standing of banking in the business community and to protect the validity of banking instruments such as Letters of Credit. The small size of the individual loans and the administration which accompanied them was felt to be uneconomic by the banks. As most weekly-paid workers would not have had bank accounts in the 1930s, if the banks had been in the mortgage business they would have expected large numbers of workmen, perhaps dressed in their work clothes to visit the banks in order to make the weekly mortgage payments. The feeling was expressed by a manager of the time that the banks 'premises were places of dignity and temples for money, not suitable places for the ordinary man to visit' (55).
There was also the practical problem of the money markets, then and now, which were not always able to arrange long-term lines of credit. The banks were loath to lend long with what were short-term deposits from savers. The banks generally did not even provide facilities for their own staff to borrow for the purpose of home-ownership but had local arrangements with building societies in return for deposits placed with them. Only Martins Bank which in the 1930s was very much a local bank operating in the Liverpool area, had home loans for staff generally available. It is believed that the 'Big Five' banks did provide senior staff and directors with home loans, but the records in the archives of the banks are limited on this matter (56). Only the archives of Barclays Bank have any information. They show that as late as 1937 advances to staff for house purchase were discouraged and it was not until 1946 that a scheme for loans to staff was introduced (57). Not only did they not lend to potential home-owners but none of the banks appeared to be aware of the growing position of the building societies and the threat they might one day pose.
The size of the building societies had grown so greatly since the end of World War I that their presence would have become very obvious. They were opening offices and advertising heavily in the local and national press, on billboards, railway stations and professional papers. Yet in the Banker there are fewer than a dozen references to the activities of the building societies during the 1930s, except to report some details of the speeches delivered at annual conferences. Sir Harold Bellman, in his role as Chairman of the Building Societies' Association told the annual conference of the National Association of Building Societies that 'the building society business is now to a very considerable extent an integral part of the organised capital markets' (58). His speech was reported, in brief, in the July 1938 issue of The Banker. The following issues of The Banker, made no further comment on the speeches nor were there any letters on the subject from readers.
By 1939 the assets of the building societies approached 'one-third of those of the "Big Five" banks, while the assets of one society alone [the Halifax] exceeded the capital of the largest British industrial company by £43 millions'(59). The capital base of the building societies had increased greatly since 1919 and their lending was very focused and profitable. Bank directors must have formed the view that the societies and the banks had their own and separate roles within the British financial establishment. No attempts were made by the banks to usurp the role of providing funds to home owners, a need which was effectively serviced by the building societies.
(46) From published accounts it can be seen that lending by the main banks for December 1929 was ,789 millions and at 3 December 1933 ,600 millions, a fall of about 25 per cent.
(47) For example, in 1935 Midland Bank made an actual profit of ,3.4m as opposed to the figure of ,2.4m shown in their accounts. A. Holmes and Edwin Green, Midland,150 years of Banking (London, 1986), p. 334.
(48) Daily Telegraph 21 August 1931, p.15.
(49) From conversations in June 1992 and April 1993 with Edwin Green, the Midland Bank's archivist since 1974. Green said that there was a very close working relationship between the higher management of the Bank of England and the directors of the main London banks. The government still believed that London was the centre of the banking world and the Bank of England would have ensured that the failure of banks elsewhere were not repeated in London. There were also discussions with Dr John Booker, the archivist and curator of Lloyds Bank in March and April 1993.
(50) From a reading of the accounts of the period.
(51) The Sunday Express of 5 January 1936 contains an advertisement from Cutler and Co., a developer of houses in Harrow offering mortgages on special terms to bank employees. The Burnley Building Society tried to gain a position as a main lender to bank employees but with only modest success. This might have been because the secretary Walter Harvey was a former banker and a member of the Institution of Bankers. From an interview with G.H. Lees (January 1993), former General Manager of National Association of Local Government Officers Building Society who knew Harvey.
(52) The interviews with Jessie Campbell took place in December 1992 and February 1993, those with Edwin Green were in March and October 1993.
(53) From the archives of Barclays Bank at Wythenshawe, vol. 5, Letters to Branches from Lombard Street, 1935-1936.
(54) Illustrated Carpenter and Builder.17 January 1936.
(55) From a conversation in February 1994 with Edward Foskett, a retired Martins Bank manager.
(56) From conversations with Jessie Campbell and Edwin Green in 1993 and 1994.
(57) From the archives of Barclays Bank. Letter of 18 February 1937 from the general managers on staff loans and letter of the 27 August 1945 H.O.Circular S6 re Loans to Staff for House Purchase.
(58) The Banker (July 1938), p. 35.
(59) The Economist (February 18,1939),p. 348.