The difficulties experienced by Midland Bank, one of Britain’s largest and most established clearing banks, provide an especially significant comparison with the treatment of the Bank of Credit and Commerce International (BCCI). The comparison is important not simply because both institutions encountered serious financial difficulties, but because their problems came to a head during the same period in 1991 under the supervision of the Bank of England.
Midland was a central institution within British banking. Founded in Birmingham in 1836, it had grown to become one of the United Kingdom’s four largest banks and, at its height, one of the largest banking organisations in the world. By the late 1980s, however, the Bank was struggling with the consequences of earlier strategic decisions, deteriorating asset quality, declining profitability and the effects of recession.
The Crocker National Bank Acquisition
A major source of Midland’s difficulties was its expansion into the United States through Crocker National Bank of California. Midland acquired a controlling interest in Crocker in 1981 and later assumed full ownership.
The acquisition proved extremely costly. Crocker accumulated substantial bad debts, including exposure to Latin America and problematic domestic loans. Midland ultimately sold Crocker to Wells Fargo in 1986, but the financial consequences continued to burden the British parent long afterwards.
By the time Sir Kit McMahon, a former Deputy Governor of the Bank of England, was brought in to lead Midland, the Bank required substantial restructuring. Senior management was changed, assets were sold, capital was raised and costs were reduced. Midland nevertheless continued to experience serious difficulties.
In 1987 it reported a loss of approximately £505 million, while further problems emerged from its investment-banking activities and its exposure to movements in UK interest rates. In 1989 an incorrect view that interest rates would decline reportedly contributed to losses of around £116 million. By 1990 the Bank was announcing thousands of job losses as it attempted to restore profitability.
The important point is not that Midland had committed the same type of misconduct alleged against BCCI. It had not. Rather, Midland demonstrates how the Bank of England approached a major British institution when its financial position became sufficiently serious to threaten its future.
A Crisis in January 1991
The extent of Midland’s difficulties was not fully known publicly at the time.
Harold James, in Making a Modern Central Bank: The Bank of England 1979–2003, was given extensive access to the Bank of England’s archives. His research subsequently revealed that in January 1991, Brian Quinn, the Bank’s senior banking supervisor, concluded that:
What followed was an intervention conducted with extraordinary discretion.
The Bank of England became closely involved in Midland’s affairs, including its management and future leadership. Contingency planning extended beyond ordinary supervisory discussions. According to the archival record examined by James, the Bank prepared for the possibility that direct financial assistance might become necessary.
Discussions with the Treasury produced a draft arrangement under which the Bank of England might have received a government indemnity for a rescue involving measures to restore Midland’s capital position, potentially including changes in retained profits, a capital injection or other financial assistance.
The contingency was ultimately not required in that form. Instead, the Bank’s intervention helped bring about changes in Midland’s senior leadership, while efforts continued to secure the institution’s future.
The seriousness of the position, however, is unmistakable. James describes the episode as a largely unknown rescue of Midland, noting that a failure of such a major clearing bank could have imposed enormous costs on the British economy and potentially triggered a wider banking crisis.
Intervention Kept Confidential
An especially revealing aspect of the Midland episode was the importance attached to confidentiality.
The Bank of England understood that public disclosure that Midland required official assistance could itself damage confidence in the Bank and make its difficulties worse. The intervention was therefore conducted discreetly.
For many years, even the extent of the Bank of England’s involvement was not publicly known.
James observes that the successful handling of Midland went largely unnoticed precisely because acknowledging publicly that a major bank had required rescue could have undermined its credibility and business prospects.
This illustrates an important principle of banking supervision:
when regulators considered an institution important and potentially viable, preserving public confidence could itself become part of the rescue strategy.
Midland was therefore given the opportunity to restructure away from public scrutiny while the authorities sought to prevent its difficulties from developing into a wider crisis.
HSBC and Preservation of the Institution
Midland already had an important relationship with the Hongkong and Shanghai Banking Corporation (HSBC), which had acquired approximately 14.9 per cent of Midland in 1987.
Although negotiations between the two banks encountered difficulties, discussions eventually resumed. In March 1992 HSBC announced an offer for Midland, and on 25 June 1992 Midland formally became part of the HSBC Group.
The transaction was one of the largest banking acquisitions of its time. HSBC subsequently moved its group headquarters to London, and Midland’s extensive UK banking network became an important foundation for HSBC’s expansion as one of the world’s largest banking groups.
Midland therefore did not disappear as a consequence of its crisis.
Its management was changed, its operations were restructured, assets were sold, capital was raised, regulatory intervention occurred behind the scenes, and ultimately the viable institution was transferred into a stronger banking group.
That outcome is important when examining what happened to BCCI.
BCCI - The Same Regulator, the Same Year
The contrast is particularly striking because Midland’s crisis and BCCI’s closure occurred only months apart.
In January 1991, the Bank of England’s senior supervisor considered Midland to be approaching a crisis.
During the following months, the Bank worked discreetly to stabilise Midland and protect confidence in the institution.
On 5 July 1991, BCCI’s international operations were abruptly closed through coordinated regulatory action led by the Bank of England.
The circumstances of the two banks were plainly different. BCCI faced allegations involving false accounting, concealed losses and other serious irregularities that were not alleged against Midland in the same form.
Any responsible historical comparison must acknowledge those differences.
But the question of double standards arises from what regulators were prepared to do once an institution was in serious difficulty.
For Midland, the regulatory objective was preservation.
For BCCI, closure became the chosen course.
Restructuring Was Also Available to BCCI
This distinction becomes more important because BCCI was not without financial support or a restructuring proposal.
By 1990, Abu Dhabi interests had acquired majority ownership of BCCI and were providing substantial financial assistance. A comprehensive restructuring programme was under development involving new management, reduction of staff and branches, separation of impaired assets and the proposed creation of independently capitalised successor banking institutions.
The restructuring was being discussed with the international College of Regulators, including the Bank of England.
Thus, the comparison is not between a rescuable Midland and a BCCI for which no alternative existed.
The question is whether the possibility of rescue and restructuring was approached with the same determination in both cases.
Midland was allowed time to replace management, raise capital, dispose of problematic operations and find a stronger strategic partner.
BCCI’s restructuring was effectively overtaken by the decision to close the Bank.
Lord Justice Bingham subsequently concluded that closure was justified on the information available to the Bank of England, but importantly his report did not suggest that closure had been the only conceivable course available. The existence of alternatives therefore remains relevant when considering proportionality.
Two Very Different Supervisory Philosophies
The Midland case exposes a fundamental difference in regulatory philosophy.
For a major established British clearing bank facing severe difficulties, the authorities were prepared to consider:
- confidential supervisory intervention;
- replacement of senior management;
- capital reconstruction;
- possible official financial support;
- government indemnification;
- preservation of market confidence;
- continued operation while restructuring was attempted; and
- eventual acquisition by a stronger institution.
These measures were regarded as legitimate tools for protecting the financial system.
The question is why comparable emphasis was not placed on restructuring BCCI when its own majority shareholders were prepared to provide substantial private financial support.
The argument is not that Midland should have been closed.
On the contrary, the Midland intervention demonstrates the value of preserving a viable institution while addressing its problems.
The double-standard question is why BCCI was not afforded a comparable opportunity.
Systemic Importance - A Legitimate Distinction?
There is an important counterargument.
The Bank of England regarded Midland as a systemically important British clearing bank. Harold James records that regulators feared its collapse could produce a wider UK banking crisis and substantial economic costs. BCCI, by contrast, was not regarded by the Bank as systemically important to the British financial system.
That distinction undoubtedly influenced the authorities’ decisions.
It provides a rational explanation for greater official concern about Midland.
But it does not entirely dispose of the comparison.
Systemic importance can explain why public resources might be committed to saving one bank rather than another; it does not necessarily explain why a privately funded restructuring should be prevented or abandoned in another case.
BCCI was not asking the British taxpayer to recapitalise the institution. Its Abu Dhabi shareholders were themselves offering financial support and pursuing restructuring.
The more precise question therefore becomes:
why did systemic importance justify extraordinary efforts to preserve Midland, while the availability of substantial private shareholder support did not justify allowing BCCI’s restructuring a greater opportunity to proceed?
That distinction deserves examination.
The Significance of Confidentiality
There is another revealing contrast.
With Midland, confidentiality was regarded as essential because disclosure of the extent of the Bank’s difficulties might destroy public confidence and precipitate the very collapse the authorities were attempting to avoid.
BCCI received almost the opposite treatment.
Its closure was coordinated across jurisdictions, branches were shut and the allegations surrounding the Bank rapidly became international news. The subsequent description of BCCI as having a pervasive “criminal culture” became inseparable from the institution’s public identity.
For Midland, regulators recognised the danger that publicity itself could destroy value.
For BCCI, the institution was closed before its shareholders had been given an opportunity publicly to respond to the allegations that precipitated the regulatory action.
This difference is particularly significant in assessing the treatment of employees and customers. In one case, preservation of confidence was considered essential; in the other, the consequences of destroying confidence became largely irreversible.
Management Connections and the Established Banking Network
The Midland episode also illustrates the importance of relationships within Britain's established financial system.
Sir Kit McMahon had spent more than two decades at the Bank of England and had served as its Deputy Governor before moving to Midland. When Midland encountered difficulty, the Bank of England possessed intimate knowledge of both the institution and many of the individuals involved.
That does not prove improper favouritism. Indeed, the Bank ultimately assisted in replacing McMahon when it considered a management change necessary.
But it demonstrates the closeness of the institutional network within which Midland operated.
BCCI occupied a very different position.
Although its Central Office was in London and it had operated in Britain for many years, its founder and much of its senior management came from South Asia, its majority shareholders were in Abu Dhabi, and much of its international business was concentrated in Asia, Africa and the Middle East.
Its relationships therefore lay substantially outside the traditional British banking establishment.
This difference does not establish that regulatory decisions were discriminatory. But when examining allegations of double standards, it is legitimate to ask whether familiarity, institutional relationships and perceptions of systemic importance influenced how far supervisors were prepared to go to preserve one institution while closing another.
The Later Historical Record
The significance of Midland became clearer only many years later.
Harold James’s archival history, published in 2020, describes the Midland intervention as one of the Bank of England’s important supervisory successes. He notes that the Bank’s discreet managerial restructuring involved “a great deal of Bank intervention” and that the episode went largely unnoticed publicly.
That retrospective assessment is particularly relevant to BCCI.
For decades, discussion of the Bank of England’s supervision in this period concentrated heavily on its handling of Johnson Matthey Bankers, BCCI and later Barings. Midland provides evidence that the Bank possessed both the authority and the practical ability to intervene creatively when it regarded preservation of an institution as desirable.
- It could work behind the scenes.
- It could influence management.
- It could develop contingency rescue arrangements.
- It could involve the Treasury.
- It could seek a strategic partner.
And it could provide an institution with time to recover without publicly destroying confidence in it.
These were precisely the kinds of alternatives that BCCI’s supporters later argued should have received greater consideration before irreversible closure.
The Double-Standards Question
The comparison should not be overstated.
Midland and BCCI were different institutions confronting different problems, and regulators had legitimate reasons to treat some aspects of their situations differently.
Nevertheless, the timing makes the contrast unusually significant.
In the first half of 1991, the Bank of England was secretly working to prevent the collapse of one major bank while, during the same period, moving towards closure of another.
Midland was a long-established British institution embedded in the domestic financial system.
BCCI was an international bank created outside the traditional Western banking establishment, with management originating largely from the developing world and majority ownership in Abu Dhabi.
Midland was given management intervention, confidentiality, time and ultimately an orderly route into another banking group.
BCCI was closed while a shareholder-supported restructuring remained under consideration.
The conclusion need not be that the two banks should have been treated identically.
The more important question is whether the same willingness to preserve institutional value, distinguish management failures from viable operations and pursue restructuring wherever credible financial support existed was applied consistently.
That is the issue raised by Midland in the wider examination of Double Standards.
A Broader Perspective
Taken together with the rescue of Johnson Matthey Bankers, the efforts to preserve Barings, and later regulatory approaches to major Western banks involved in LIBOR manipulation, money laundering and sanctions violations, Midland strengthens a broader historical argument.
Western regulators repeatedly demonstrated that serious financial difficulties, bad management and even criminal misconduct did not necessarily require institutional extinction.
Banks could be rescued, reorganised, acquired, fined or reformed.
BCCI experienced the most final remedy available: closure.
The appropriate historical question is therefore not why Midland was saved.
It is why the principle underlying Midland’s rescue - preserve viable banking operations while addressing the causes of failure - was not afforded comparable weight in the case of BCCI.
Also read:
- Double Standards: The Forced Closure of the BCCI Bank (2016)
- Examines the closure of BCCI and argues that its treatment should be compared with the regulatory response to difficulties and misconduct at major Western financial institutions.
- Making a Modern Central Bank: The Bank of England 1979–2003 - Harold James (Cambridge University Press, 2020), Chapter 14, “Failure of Internal Communication”. Particularly important because it draws on extensive Bank of England archival material and reveals the scale and confidentiality of the Bank’s intervention in Midland during 1991.
- Lord Justice Bingham, Inquiry into the Supervision of the Bank of Credit and Commerce International (1992). The principal official UK account of the Bank of England’s supervision of BCCI and the events leading to closure.
- Bank of England / Board of Banking Supervision, Report of the Inquiry into the Circumstances of the Collapse of Barings (1995). Useful for comparing the regulatory response to another major banking failure and the subsequent preservation of viable operations.
- “When the Bank of England Rescued Midland” (2020). Drawn from Harold James’s archival research, it summarises how the Bank intervened when Midland was judged to be approaching crisis and how its longer-term future was secured through HSBC.
- HSBC Archives and History, Midland Bank records. Documents Midland’s development, its relationship with HSBC and the 1992 acquisition through which Midland became part of the HSBC Group.