1915 war loan | RBS Remembers

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1915 war loan

Bank clerks working on the allotment of 1915 war loan, Grocers' Hall, London


By spring 1915 the government was planning a second war loan. Unlike the first loan, it was to be marketed heavily to smaller investors. Previously, the minimum investment had been £100, but now people could participate for as little as £5. This lower limit gave the government access to a much larger pool of potential investors. Furthermore, drawing investment from the broader economy had the benefit of helping to counter domestic inflation, thereby steadying international exchange.

The details of the new loan were announced in June 1915. Its term was longer than that of the previous loan, falling due for payment between 1925 and 1945, and the interest rate was higher, at 4.5%. It was issued at par, meaning that investors received no discount at the time of buying their stock.

Unlike in 1914, the government did not consult the banks in advance on the terms of the loan, perhaps because it knew they would have little choice but to support it, rendering pre-launch negotiations unnecessary. The banks were annoyed, believing they should have been consulted, in view of their twin roles as major buyers and chief salesmen. They later sent a joint letter to the Chancellor of the Exchequer, expressing their view: 'had they [the banks] been taken into the confidence of the government they might have made suggestions that could have rendered the operation more advantageous to the public and less onerous to the state.'

We are assembled at a time when the greatest strain is being imposed upon the financial interests of the greatest city in the world, and, primarily, the strain falls upon you, gentlemen. I have to ask you to make this loan - I am not using exaggerated language - a world record.

The Chancellor of the Exchequer speaking to representatives of the British banks, 9 July 1915

On 9 July 1915, after the loan had already been launched, the Chancellor of the Exchequer did hold a meeting with representatives of all Britain's banks in the City offices of our constituent London County & Westminster Bank. Despite feeling snubbed by the lack of consultation and worried about the loan’s effect on their depositors and customers, the banks were anxious to act patriotically. They agreed to the Chancellor's request to double the amount they had put into the 1914 loan. Provided they subscribed enough new money, the terms of the loan permitted some of their subscription to be in the form of stock rolled over from the 1914 loan, and also from consols (government debt) they already held. Other investors could also convert their holdings of 1914 stock, and so of the £900m officially raised by the loan, £313m was actually rolled over from existing debt.

As previously, the banks were expected to take a leading role in selling the loan to their customers. With the minimum investment set at £5 (equivalent to just over £400 today), many more customers were potential buyers. Some banks extended their opening hours to make it easier for customers to submit applications. They even offered loans at a favourable interest rate, so that customers could borrow in order to subscribe. In recognition of all this extra work, and in particular of the high administrative costs of so many small subscriptions, the government paid the banks an increased rate of commission, amounting to 2/6 per £100, or 0.125%.

The smaller minimum subscription also meant that many bank workers were themselves potential investors. Some banks introduced schemes to help staff to club together to buy war loan stock, and pay for it later through monthly salary deductions. London County & Westminster Bank’s scheme attracted 142 members, raising £2,725.

When smaller investors participated in the war loan, they tended to find the money by withdrawing it from their bank savings accounts, so banks saw a significant drop in their deposits. In theory, the government would soon spend the loan money on goods, whose suppliers would then put the money back into their bank accounts, stabilising the banks' balance sheets. In practice, however, a large portion of the loan money was used to repay government debt at the Bank of England, and did not quickly find its way back into the wider economy. In consequence, the 1915 loan left the banks feeling stretched for many months, with depleted deposits on one side, and their own sizeable commitments to the loan on the other.

When all the applications were added up, it was found that the 1915 war loan had attracted over a million subscribers. It nominally raised £900m, but more than a third of that total was actually conversion of existing debt. Of the new money, one third was contributed by the banks. The Royal Bank of Scotland, for example, applied for over £2m of the new loan, taking its total holding of British government securities up to £5.3m by October 1915, compared to £1.6m a year earlier.


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