Abstract: Managing Risk or Appeasing the Nazis? British Banks and Standstill Debt in the 1930s

Mark Billings


In July 1931 financial crisis led Germany to declare a de facto moratorium on its international debts, including normal commercial debts. These became subject to a Standstill agreement, which provided for limited payments to creditors; it was renegotiated and renewed regularly until the outbreak of World War II. British creditors, including the banks, were heavily exposed to German debt, which had suddenly become subject to sovereign and, with the abandonment of the gold standard, currency risk. The British banks appeared less aggressive than most Standstill creditors in reducing their exposures, in what is regarded variously as enlightened pragmatism or economic or financial appeasement. Under pressure from government and the Bank of England, both of which wanted to keep Germany integrated with the international financial and trading system and defuse economic tensions, the banks were obliged to balance patience against their desire for repayment. This paper argues that the major British commercial banks dealt with Standstill debt, notwithstanding its unusual character, in a manner broadly consistent with their management of risk arising from other types of lending. I reinforce those interpretations of economic appeasement which assert that the outward appearance of a common approach by ''City interests'' oversimplifies a more complex picture.