Britain's banks and businesses knew very well that the nation's financial challenges would not end with the war. The economic transition to war conditions in 1914 had been a great strain, and the change back to peace was likely to be just as demanding - perhaps, in some regards, even more so. People had sacrificed so much, and had done it willingly because of what they felt was at stake. Many had come to believe they were fighting not to bring back the world of 1914, but to build a better one. It was to these people that David Lloyd George was appealing when he spoke in his 1918 election campaign of 'homes fit for heroes.'
Although the banks didn't know when peace would come, they began thinking and talking seriously about what it would mean as early as 1917. By 1918 it was a major concern.
One sign of the banks’ awareness that customer needs would be greater after the war was the large number of bank mergers that took place in 1917 and 1918. Merger was seen as a way to create sturdier banks that could meet calls for advances and support in a flexible way in every district of the country. For similar reasons, many banks looked to open new branches as soon as possible. Just two days after the armistice, on 13 November 1918, National Provincial was already in a position to publish a list of 130 new branches it intended to open. In many cases banks even had premises ready and waiting for the day when the necessary staff and other resources became available.
On the sea and on the battlefields our nation has shown marvellous courage, discipline and a wonderful ability for organisation and these qualities must then be transferred to the cause of commerce...if we are to repair the terrible ravages of the war and retain our position in the family of nations all must work together in willing service for the common good as members of one another.
Northamptonshire Union Bank's chairman, speech to shareholders, February 1918
The banks knew that their balance sheets had been distorted by war conditions, and would shift once more in the transition to peace. Deposit balances were unusually high, because many customers had prospered in the war, and put more money into their bank accounts. Banks expected large sums to be withdrawn from those balances fairly quickly after the return of peace. Customers would have several years' worth of property maintenance costs to catch up on; businesses would need to adapt their equipment back to peacetime production; and personal customers might look towards buying luxuries they'd been denied in wartime.
On the other side of their balance sheets, banks had seen a proportional drop in their customer loans. Much of their investment capability was tied up in government lending, and in any case demand for customer loans had reduced as the war went on. They expected demand to increase when the war ended, but were cautious about how far they should meet it. Many businesses had become focussed on constantly increasing production at all costs, but such expectations were not realistic in a transition from war to peace. Optimists thought that revived domestic consumer demand would be boosted by the resumption of access to global markets, but others were not so sure. Many of Britain's pre-war overseas customers had developed their own domestic industries while Britain was busy with the war. Competitor-nations had also seized the opportunity to expand their exports. Many of our banks' biggest customers were engaged in Britain's major export industries - coal, iron, textiles and shipbuilding - and it was by no means clear that their pre-war status would ever be regained.
The banks wanted to support their customers, and were particularly aware of the damage that could be done by sudden unexpected refusals, but also did not want to make loans that would never be repaid. Lending did indeed increase in the brief boom of 1920 and 1921, and when a long and severe recession followed, many banks found themselves carrying significant customer debts for long periods.
Despite all the talk of a bright future, Britain's economy at the end of the war was in a shaky state. Far from being able to start paying off war debts, the government had to go on increasing borrowing for some time. By 1920 the national debt had reached £7.9bn. Just paying the interest on this sum cost the nation more than its entire expenditure had been in 1913. The economy was under severe strain, and cracks began to appear. As the 1920s progressed Britain fell deeper into recession. The banks faced growing criticism, with accusations of failing to support business, and even some demands for nationalisation.
A government investigation after the stock market crash of 1929 (the Macmillan Committee report, published 1931) was generally supportive of the commercial banks' work in providing short-term credit for business and convenient retail banking services. It did identify deficiencies in Britain's financial systems for funding medium-sized business and exports, but its criticisms were not directed at the commercial banks. Nevertheless, a real shift had occurred in the relationship between the British public and the banks. From now on, bankers would have to work hard to regain and maintain their standing as valuable contributors to British public life.