English commercial bank liquidity, 1860-1913

This article presents new half-yearly time series for the asset ratios of commercial banks in England and Wales, 1860-1913. The series reveal new evidence on the nature of the banks' business and are, therefore, relevant to the debate on the role of banks in British economic development. The new estimates are used to examine trends and short-term changes in bank liquidity. Analysis is concerned with the changing stability of bank asset structure and with substitutability across different asset ratios. The main finding is of a sharp, long-term increase in liquidity and a concomitant decline in bank credit to the non-bank, private sector. The article also highlights the significance of short-term shocks to the trend increase in bank liquidity. The new findings are supportive of the argument that, over time, English banks became less involved with the non-bank private sector. In general, the results confirm that the English and Welsh bank asset structure became more liquid over time. However, no detailed breakdown of bank loans to the non-bank, private sector (for example, between business loans and personal loans), is available for this period. Moreover, the current study offers no evidence as to the trend in financial provision to the business sector from institutions other than the commercial banks. Nevertheless, the results are clear in showing a strong upward trend in commercial bank liquidity and a relative decline in private sector credit provision by the commercial banks.