Preventing financial ruin: How the West India trade fostered creativity in crisis lending by the Bank of England

Abstract This paper contributes to the understanding of the complex relationship between British economic performance during the Napoleonic wars and the ‘West Indies’, as the Caribbean slave colonies were called. Not only did profits from slave‐based commerce provide financing for the growth of the financial sector, as has been claimed, but the risk of financial instability created by the financial sector's investment in and exposure to the Caribbean slave economies made it necessary for the government – and the Bank of England – to support this trade. The Bank of England archival records demonstrate that the Bank developed lending facilities specifically for the purpose of supporting West India merchants through the financial crises of the 1790s and the first decades of the nineteenth century. Not only did the Bank engage in unconventional lending, explicitly providing loans of more than a year, but the Bank also made innovative crisis loans, both accepting goods as collateral and providing large loans that were protected by extensive third‐party guarantees. Furthermore, the 1799 loan is a documented instance of the Bank accepting consols as collateral for crisis lending. These innovations made it possible for the Bank to act alongside the government in supporting the West India merchants through the Napoleonic wars and may have been influenced by the growing number of directors of the Bank who were themselves West India merchants.