War Finance and Reconstruction, 1939–51
For the discount houses the approach of the Second World War appeared to offer no comfort at all. The only distinctive contribution that the houses could offer to justify their existence in the later 1930s was their provision of the call-loan market, based upon bill dealing. Because bill business yielded no profit the houses subsidised it through their bond dealing, which itself was hardly tolerated by the authorities. The ‘rescue’ operation of 1934–5 had been mounted in the hope that because the existence of a separate call-money market suited both the Bank of England and the clearing banks, it might again, one day, become a profitable activity for the houses as the business in commercial bills revived or as the return on Treasury bills was increased by the ending of the cheap money policy. Now the houses faced the possibility that a major war would not only dash all hopes of a revival of commercial paper but would demand finance on such a scale that the authorities would be forced to modify the financial process — to the possible exclusion of the discount market.
KeywordsMonetary Policy Bond Price Treasury Bill Bank Deposit Discount Market
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