The main concern of banks, however, was the inexorable squeeze on their margins. Twenty years ago banks were humming along on top quality corporate lending margins of over 2%. In the later 1980s these were as fine as three-eighths-of-a-percent or less. Barclays' congenial managing director, Andrew Buxton, sighs: "To replace its capital a bank needs much more than a three-eighths-of-a-percent margin." (This varies with the market.)
The obvious solution was to exploit new areas. Thus there was a charge, led by NatWest, into the smaller entrepreneurial sector and a wooing of the retail customer. Charges for personal banking were slashed and new products tucked in. It became, says Midland's Stephenson, "like going from shopping in Romania where there is bread or no bread, to going to Waitrose and finding there are 50 kinds of bread."
The other big move was overseas. Standard Chartered and Barclays recently effected a retreat from the US. But NatWest and Midland thought the decade right for an incursion into America. US banking was huge, fragmented, and the targets so transparent, says analyst Chris Wheeler, that "you could find out the colour of the chairman's underwear". Under former chief executive Geoff Taylor, Midland bought the US Crocker Bank. It was a disaster and was sold in 1987. NatWest, under chief executive Tom Frost, dug into New Jersey, after an earlier buy in New York. The new banks are sound, but now hamstrung by the plunge in US real estate.