Mortgages, Maturity Mismatching and the Transformation of British Banking, 1971-92

Before 1971 British banking enjoyed a century of relative stability. Victorian banking principles preserved the profession. Banking institutions kept to their lanes. The cardinal rule of clearing banking was that to lend long one must also borrow long. By the 2000s the clearing banks had essentially become mortgage banks. A myth emerged that the banks had always borrowed short and lent long. The traditional position of banking prudence was incompatible with modern mortgage bank lending. During the 1960s disintermediation of the banks by the growing secondary banking sector and the intense containment of credit squeezes brought pressures to a breaking point. Competition and Credit Control was devised to rebalance and contain the industry but instead it unleashed credit growth. The policy was abandoned after two years but not before it had introduced a fundamental change to the practice of British banking. Banks began to liability manage by bidding for funds on money markets. The traditional order of banking involved a banker seeking out deposits in order to then lend them on. This order was reversed as banks secured lending business before sourcing deposits. During the 1970s the banks gained experience mismatching in their international business. Stagnant growth, persistent inflation, and monetary control prevented them from expanding their domestic business. They were losing retail deposit market share, particularly to the building societies. When international business soured during the 1980s sovereign default crisis the banks extended their mortgage lending in order to recapture retail deposits. This business proved popular and the banks’ mortgage lending grew substantially during the 1980s. The lending of the societies and the clearing banks converged and the unsatisfied demand for mortgage loans was filled. The banks had to abandon their reservations to undertake this business. In time, their long-held aversion to maturity mismatch fell into history.

Name dc:type.qualificationname

Doctor of Philosophy (PhD)

Level dc:type.qualificationlevel

Doctoral

Grantor dc:publisher.institution

University of Cambridge

Year dc:date.issued

2024

Author dc:creator

• Lloyd-Regan, William

Advisor dc:contributor.advisor

• Needham, Duncan

• Financial History
• Banking History
• Mortgage Lending
• Maturity Mismatch
• Liability Management

Licence

• https://www.repository.cam.ac.uk/bitstreams/037d3c7f-8ba2-4241-8ce7-086bd0f46ed5/download
• https://www.rioxx.net/licenses/all-rights-reserved/

Language dc:language

eng

DOI dc:identifier.doi

https://doi.org/10.17863/CAM.113423

OAI identifier oai:identifier

oai:www.repository.cam.ac.uk:1810/376038