From Crisis to Crisis by Brian O’Sullivan

Author:Brian O’Sullivan
Language: eng
Format: epub
ISBN: 9783319966984
Publisher: Springer International Publishing

Source Author’s table based on information in R. J. Truptil, British Banks and the London Money Market (London, 1936), App.III

Since acceptances were usually for three months duration, the average remaining duration would have been about six weeks. Therefore, if a merchant bank was faced with actual, rather than contingent, liabilities on its outstanding acceptances, the question would have been whether it had sufficient cash or readily realisable assets to meet these liabilities. This measure is more appropriate than the one using a firm’s capital base. Table 7.4 shows the ratio of liquid assets to acceptances outstanding for those banks for which balance sheets were available. Where this ratio is low, it means that there would have been a shortage of cash if acceptances had to be met immediately from the bank’s own resources. Those banks with ratios highlighted would have struggled in a crisis. Schroders and Japhets had coverage for only about half of their potential acceptances liabilities, while the LMB usually operated with even less cover. In contrast, Hambros and particularly Barings had ample coverage.Table 7.4Ratio of liquid assets to acceptances outstanding, 1927–1931

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