Lidderdale occupied Sunday by taking his small son to London Zoo, but next morning was ready to receive the chancellor. ‘To the Governor of the Bank,’ recorded Goschen:
Found him in a dreadful state of anxiety. Barings in such danger that unless aid is given, they must stop. —— [that is, Revelstoke] came in while I was there; almost hysterical. Governor and he both insisted that the situation could only be saved if Government helped … Picture drawn of the amount of acceptances held by various Banks, which would have to stop. All houses would tumble one after the other. All credit gone. I entirely understood their reasoning, but remembering action taken in France when [in 1889] Comptoir d’Escompte was in difficulties, I said the great houses and banks in London must come together and give the necessary guarantees. This was declared impossible if the Government didn’t help.
The chancellor then called on two other (unnamed) bankers, who were likewise adamant that government help was necessary. ‘Both quite demoralised,’ noted Goschen. ‘Lidderdale much more of a man and keeping his head, though certainly he pressed me hard.’ That evening and into the small hours, after he had attended the lord mayor’s annual Mansion House banquet for bankers and merchants, Goschen agonised. ‘If I do nothing and the crash comes I shall never be forgiven: if I act, and disaster never occurs, Parliament would never forgive my having pledged the National credit to a private Firm.’ At last, his ‘night thoughts’ convinced him of the difficulty as well as undesirability of seeking to carry direct aid in Parliament: ‘How defend a supplemental estimate for a loss of half a million! And would not immediate application put the whole fat in the fire?’ The City, in short, would apparently have to rely on itself.22
Over the next three days, Tuesday to Thursday, there were four main aspects-cum-developments. Firstly, neither Goschen nor Lidderdale giving ground, with the governor still insistent that the Bank could act only within a larger umbrella provided by government; secondly, the Bank persuading the Russian government not to make the £1½ million withdrawal from Barings due on the 11th; thirdly, after Lidderdale on the Monday had urged Goschen to get him involved, Natty Rothschild emerging as a constructive figure, not only leaning on the Bank of France to lend £3 million in gold to reinforce the Bank’s badly stretched reserves, but exercising informal pressure on his good friend the prime minister, Lord Salisbury, to take a less passive approach to the crisis; and fourthly, the real key, Lidderdale deciding to appoint a two-man committee to determine whether Barings was solvent in the long run, in other words whether it was worthy of rescue. The committee comprised the octogenarian director Benjamin Buck Greene and the leading banker Bertram Currie, the latter happening to be Revelstoke’s other particularly close City friend, the two men going back many years. ‘I don’t like to come & see you & hardly think I ought to write,’ a highly emotional Revelstoke wrote to Currie after the appointment was made, ‘but I cannot help sending one line in my wretched agony to implore you to do what you can. I know you will & I am sure you feel for us all in our nightmare.’23
Friday the 14th, the decisive day, unfolded in three acts. The first took place at the Bank, where it became clear that in the view of Greene and Currie, notwithstanding Barings’ urgent need for a huge cash loan of up to £9 million, ‘if sufficient time be given for realizing the assets … the Firm will be left with a substantial surplus after discharging their liabilities’. ‘I must frankly say,’ Greene himself would subsequently write to Lidderdale about his memories of that morning, ‘that as the amount required was so large … I considered the shutters must go up soon after I reached The City, instead of which on delivery of the report to my surprise you instantly said “They must be carried on …”.’ At the same time, it was also becoming clear that, after almost a week of successful news management, the City at large was beginning to give way to outright panic. At about noon John Daniell, senior partner of Mullens the government brokers, rushed into the Bank, beseeching Lidderdale with his arms aloft: ‘Can’t you do something, or say something, to relieve people’s minds? They have made up their minds that something awful is up, and they are talking of the very highest names – the very highest!’ During the next hour, Barings’ bills started to pour into the Bank, as hardly anyone else would purchase them, though the Bank itself was naturally anxious that, with the value of those bills plummeting, it stood to make a serious loss when it came to reselling them; and at about two o’clock, with the entire credit of the City at peril, Lidderdale slipped quietly out of the Princes Street door.
He took a circuitous route until he secured a hansom cab to drive him to Downing Street. There he did not meet Goschen, who was committed to speak in Dundee that evening and believed he had to fulfil the engagement in order to avoid panic. Instead his place was taken by W. H. Smith (first lord of the Treasury), soon accompanied by Salisbury. For at least an hour there was give from neither side. At one point Salisbury offered authority to suspend once again the Bank Charter Act; but this the governor (as he was to recall) ‘emphatically refused’, declaring that ‘reliance on such letters was the cause of a great deal of bad banking in England’. Eventually, Lidderdale played his highest card:
I told Lord Salisbury I could not possibly go on with the matter at the Bank’s sole risk; that the Bank had been taking in Baring’s Bills all the week, pending the investigation; that they were probably coming in fast now that alarm had set in, and that unless Government would relieve us of some of the possible loss, I should return at once and throw out all further acceptances of the Firm.
This threat carried the day, as Salisbury and Smith in effect gave Lidderdale just under twenty-four hours to save Barings, promising that government would meet half the loss resulting from the Bank taking in Barings’ bills up to early afternoon on Saturday. By 5 o’clock, mercifully spared the traffic gridlock of late-Victorian London, the governor was back at the Bank for the day’s final act.
Bertram Currie was one of those waiting for him, as Lidderdale summoned an immediate meeting in his room and declared his intention of launching a guarantee fund for Barings, in effect a ‘lifeboat’, with the Bank itself putting up the first million pounds. Currie quickly responded by saying that his own bank, Glyn Mills, would contribute half a million provided that Rothschilds did the same. Moments later Natty Rothschild entered the room. Would he agree? ‘He hesitated and desired to consult his brothers,’ recalled Currie, ‘but was finally and after some pressure persuaded to put down the name of his firm for £500,000.’ What pressure? According to Hamilton, his ear close to the ground, it required Lidderdale to say bluntly to Rothschild: ‘We can get on without you.’ What would have transpired if Rothschild had called Lidderdale’s bluff is an unanswerable question. But he did not, and the success of the guarantee fund was assured: over the next half-hour the City’s elite rushed to contribute. Subscribers to the first list included Raphaels (£250,000), Antony Gibbs and Brown Shipley (£200,000 each), and Smith Payne & Smiths, Barclays (still a private bank), Morgans and Hambros (£100,000 each). That evening, Lidderdale met representatives of the five leading joint-stock banks, who put themselves down for £3¼ million. Essentially, the fund indemnified the Bank against any losses arising out of advances made to Barings to enable it to discharge its liabilities; and the certainty was that Barings – and the City – would now be saved.24
‘The Bank of England has added to its historic services to the State and to the commercial community by prompt and courageous action which has averted a lamentable catastrophe,’ applauded The Times next day. ‘Thanks are due to the present energetic administration of the Bank, not only for providing for a vast reinforcement of the stock of gold to meet the possibility of the exceptional demands that arise out of panic, but for stepping out of the ordinary routine of business to prevent the downfall of one of the greatest and most respected of English financial houses …’ In the event, not all was sweetness and light over the following week, with Lidderdale for his part distinctly unhappy about the response fr
om north of the border. ‘I am ashamed of my countrymen,’ he wrote on Tuesday, 18 November to the London manager of the Bank of Scotland:
£250m [that is, £250,000] each from the three most important Scotch Banks as a contribution towards our effort to avert a national disaster! You Scots Bankers are dependent upon the Bank of England for the prompt return of the large sums employed in this market, and for the safety of a considerable part of the security you hold against that money. If the Bank of England had failed to save Barings, not a bill you hold would have been beyond question.
Next day, Wednesday the 19th, it seemed for a few hours in the City as if the guarantee fund had never been, with one well-informed banker, John Biddulph Martin, relating in his retrospective account a loaded encounter:
A rumour, more or less well founded, that the joint stock banks had announced that they would call in all loans from the Stock Exchange, caused almost a panic in the morning; it was certain that the Governor of the Bank of England called the managers in and told them that if they would not give their customers reasonable accommodation, they must not themselves look to the Bank in case of need. Thereupon they let it be known that they would make advances as usual, and a general improvement all round took place immediately. This seemed to be the turning point, and the crisis was at an end.
So it was; and at the end of the year, Lidderdale received a formal deputation from the Committee of the Stock Exchange, expressing admiration in their address for ‘the masterly ability with which the measures of yourself and the Court of Directors were carried out in the negotiations in this Country and abroad’ – and ‘more especially’ for ‘the firm and decisive manner, in which your great influence as Governor was so wisely and courageously exercised, that a panic of unparalleled dimensions was averted’. Lidderdale’s reply was characteristic: ‘I shall always remember with pride and satisfaction that, in the opinion of such a body as yours, in a moment of danger I was able to do my duty.’
The successful resolution of the crisis did not preclude the odd external criticism, notably – and perhaps predictably – from the Economist. For one thing, there was the issue of moral hazard, for another thing there was the question of being too big to fail. Neither phrase was in the contemporary vocabulary, but that was the gist of the paper’s critique in its issue dated 22 November: the guarantee, it argued, had been ‘rather too far reaching’; and it expressed anxiety about a precedent being set in which, after a sufficiently large financial institution had over-committed itself ‘to the extent of a sufficient number of millions’, this would automatically mobilise the banking system as a whole ‘to tide them over their difficulties’.25 What contemporary analysis tended not to focus on was a comparison of the 1866 and 1890 crises – in particular, why the Bank had chosen to rescue Barings less than a quarter of a century after it had decided to leave Overend Gurney to its fate, even though Overends did in time pay its creditors. The answer lay partly in the objective and more or less accurate assessments made at the time about the larger damage that would be caused by the failure of those houses; but it also lay partly in more subjective considerations. Overend Gurney prior to 1866 had spectacularly blotted its copybook in the Bank’s eyes, whereas Barings in 1890 was supremely the establishment’s – political and social as well as financial – inside house. More than almost all his colleagues, Lidderdale may have been a semi-outsider in the City; yet as governor of the Bank he could not help but be, like Barings, at the very centre of a whole nexus of assumptions, influence and connections. Ultimately, the lesson of the crisis was that the establishment would always do its best to look after its own; and nowhere more than in the City, still in many ways an intimate and village-like place, did it pay to be fortunate in one’s friends.
9
Wonderfully Youthful in Spirit – Considering
The Baring Crisis had, among other things, thrown into sharp, Bagehot-like relief the question of the Bank’s palpably inadequate reserves of gold, less than £11 million as the crisis broke.1 Amid a plethora of ‘schemes’ in the air, Lidderdale had typically strong views, as related by Hamilton after a conversation in the early days of 1891:
He was prepared to try the experiment of £1 notes … but he doubted if the addition by this means of more gold in the bank cellars would be any great gain … The only way of increasing the spare cash of this country, the smallness of which was our real danger, was to take steps whereby the Joint Stock Banks would be made to keep larger balances; and the least objectionable manner of securing this end would probably be to require them to publish frequently their balances … Lidderdale is prepared to go on as Governor for a third year, notwithstanding that it means a considerable private loss: he is wrapped up in the work at the Bank, and is fully alive not only to the interest but to the importance of the post. I don’t think he greatly appreciates the Chancellor of the Exchequer, of whose extreme sensitiveness and at times want of courage he complains. I admitted that it was a pity Goschen was thin-skinned. ‘Thin-skinned,’ said Lidderdale. ‘Why, he has no skin at all; he is nothing, but nerves and bones.’
The governor later in January sought to fortify the chancellor – complaining about the country’s ‘very inadequate Banking Reserves’, highlighting the invidiousness of the Bank’s position given that the larger its own reserve ‘the less Bankers like to keep their money unused’, and even expressing quasi-regret for having helped the bankers the previous autumn, calling them ‘a stiff-necked & rebellious race each caring only for his own corporation’ – with the result that Goschen in late January made a major speech at Leeds on the whole thorny subject. After noting the relative smallness of English bullion reserves compared to those in France, Germany and the United States, as well as the fact that London being the world’s only free gold market left it peculiarly exposed, and declaring that it was ‘a false system and a dangerous system to rely significantly upon the aid the Bank of England can give in a crisis’, he put forward three key proposals: that the banks should maintain greater cash reserves (presumably, albeit unstated, at the Bank of England); that the banks should reveal the extent of their reserves more frequently; and that the reintroduction of £1 notes would, by taking the place of sovereigns in people’s pockets, have the effect of increasing the amount of gold at the Bank of England.
The story of the next year was of the failure of Goschen’s plan (apart from the banks agreeing to monthly – but not weekly – publication of their balance sheets), a failure partly attributable to his own lack of resolve, but mainly to hardening opposition from an instinctively conservative, change-averse City. The leader of the resistance was Bertram Currie, arguing throughout that banks entrusting greater reserves to the Bank benefited only one institution, the Bank itself. ‘That the Bank should desire to increase the balances of its customers is natural and laudable,’ he wrote in May to the governor in the course of a less than good-tempered correspondence, ‘but how the public, other than the holders of Bank Stock, are to be benefited, I fail to see.’ To which Lidderdale (who indeed stayed on for a third year) responded: ‘Somebody who once was sick wanted to be a Monk, but changed his mind on recovery. Similarly, the Bankers increased their balances after the Leeds speech … but this soon became too much for their virtue.’ Unfortunately, Lidderdale’s heavy-handedness was part of the problem, with Hamilton observing soon afterwards that he had been ‘preaching at the Joint Stock Banks again’. Nor did it help the governor that the scheme had such patchy support from his own colleagues. ‘Notwithstanding that the measure has the cordial approval of the Governor himself, the majority of the Court appears to be very lukewarm about it, if not hostile to it,’ recorded Hamilton later that year after conversations with ‘sundry’ Bank directors. ‘It is a case of “laissez nous faire”. “We have got on well enough up till now, why not leave us alone?”’ Indeed, Lidderdale’s own soundings revealed a substantial minority (eleven out of twenty-six) explicitly hostile, with a future governor, the merchant Samuel Gladstone, declari
ng that ‘Mr Goschen’s proposal would have as much effect on foreign exchanges as King Canute’s orders had on the waves of the sea,’ while a former governor, Edward Howley Palmer, offered a historical warning about the practicality of small notes, referring gravely to ‘the danger and risk to the working classes of the forgeries which existed so extensively when they were last in circulation’. The governor’s tone, reporting back to Goschen on his findings, was understandably weary: ‘Do you expect enthusiastic support from the Bank to anything? We are not a very youthful body of men, though wonderfully youthful in spirit – considering.’
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