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EUI Working Paper SPS No. 96/3 Access European Open Gerschenkron on his Head: Banking Structures in 19th-Century Europe, North America, and Australasia Author(s). Available

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Gerschenkron on his Head:

Banking Structures in 19th-century Europe, North America, and Australasia Research Institute

Daniel Verdier University Department of Social and Political Sciences European University Institute European Institute. Cadmus, on University

I am pleased to acknowledge the invaluable research assistance of Elizabeth Paulet. I Access

thank Lawrence Broz, Robert Gilpin, Peter Hertner, Maurice Lévy-Leboyer, Michael European Open Mastanduno, and Herman Van der Wee for their valuable comments and research sug­ gestions. I also thank Mr. Nougaret from the Crédit Lyonnais, Dr. Gabriele Jachmich Author(s). Available from the Institut für Bankhistorische Forschung E.V., Dr. Francesca Pino from the The 2020. Banca Commerciale Italiana, and Dr. Sbacchi from the Credito Italiano for kindly and © in generously responding to my requests for documentation. A revised version of this

paper was delivered at the 1995 Annual Meeting of the American Political Science Library

Association, The Chicago Hilton, August 31-September 3, 1995. The research on EUI

which this paper is based was financed by the Research Council of the European the by University Institute. produced version Digitised © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository. Repository. Research

ABSTRACT Institute University European Gerschenkron on His Head: Institute. Banking Structures in 19th-Century Europe, North America, and Australasia Cadmus, on University

Alexander Gerschenkron explained variations in banking structures in 19th century Access Europe—the fact that some countries like Germany and Italy had universal banks, whereas European Open others, like Britain, France, or the United States, had specialized banks—by the timing of industrialization. I argue, instead, that universal banking rested on two necessary conditions: a Author(s). Available fragmented deposit market and the existence of a liquidity guarantee. These two conditions The

were simultaneously met in regimes where the industrial, state-building center, and the 2020. © in agrarian, antistatist periphery co-existed in close balance. In contrast, where the agrarian periphery was too weak, the fragmentation condition was not met, whereas when it was too Library strong, the central banking condition was not met. Universal banking was an inverted U- EUI

function of the degree of centralization of the polity. The present hypothesis is tested against the

Gerschenkron's timing-of-industialization hypothesis on a crossnational dataset including 15 by European, North American, and Australiasian countries. produced version Digitised © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository. Repository.

Gerschenkron on His Head:

Banking Structures in 19th-Century Europe Research Institute Most modern banking structures were cast during nineteenth century industri­ alization. They varied between extreme specialization—as in Britain, where merchant University banks, colonial banks, clearing banks, issuing banks, discounters, jobbers, stock­ brokers, and savings banks, each engaged in distinct financial activities—and the almost complete absence of specialization—as in Germany, where all these activities were European

indifferently handled by all large banks. My purpose is to explain variations in the Institute.

degree of specialization of national banking structures. Cadmus,

Banking structures is a topic worth of consideration for two reasons. First, bank­ on University ing structures have distributional effects. Universal banks have been alternatively Access celebrated and blamed for channeling capital to large, concentrated industries at the European expense of smaller ones. Specialized banking, in contrast, has been blamed for divert­ Open ing capital from industry at large. Second, banking structures have redistributional Author(s). consequences as well. At stake in banking regulation is who pays for the cost of sol­ Available

vency. Banks must guard against the risk of insolvency-when liabilities are due before The 2020. © assets can be realized. To guard against that risk, banking systems must build costly in cash reserves. Banking structures differ as to how they distribute the cost of solvency. Library As we shall see in this study of the nineteenth century, in specialized structures banks EUI and borrowers (firms) bore the cost of solvency, whereas in non-specialized structures the

such costs were unloaded on the unorganized groups of taxpayers and depositors. On by account of their dis- and redis-tributive effects, capital markets are unlikely to function independently from political markets. The theoretical challenge is to assess the impor­ produced tance of this traffic: were differences in banking structures mostly shaped by variations version Digitised 2 Repository. in economic fundamentals, or did they merely reflect the relative political power of dis­

similar coalitions of interests? Research Alexander Gerschenkron pointed to an economic fundamental.1 For him, bank-

firm-state relations reflected capital availability at the time of industrialization. Institute Although it has been faulted for its empirical imprecision, Gerschenkron's theory is still dominant. The proposition that industrial capital shortage made continental bank­ University ing less specialized than British banking is widely shared among economic historians. Even political scientists now and then rely on Gerschenkron's theory to account for dis­ European similarities in political institutions among capitalist countries.2

The purpose of this paper is to offer an alternative explanation. Rather than Institute. derive banking structures from an economic fundamental—the timing of Cadmus, on

industrialization—I propose to derive banking structures from a political fundamental- University the extent of state building. Rather than variations in the timing of industrialization, Access dissimilarities in political institutions shaped banking structures. Industrial capital scar­ European Open city reflected, rather than caused, bank-firm-state relations. More precisely, I argue that universal banking rested on two necessary condi­ Author(s). tions: a fragmented deposit market and the existence of a liquidity guarantee. These Available two conditions were simultaneously met in regimes where the industrial, state-building The 2020. © center, and the agrarian, antistatist periphery co-existed in close balance. In contrast, in where the agrarian periphery was too weak, the fragmentation condition was not met, Library whereas when it was too strong, the central banking condition was not met. Universal EUI banking was an inverted U-function of the degree of centralization of the polity. the

The paper begins by defining, and offering a measure of, the dependent variable- by the degree of banking specialization—as well as recalling Gerschenkron's timing-of-

'Gerschenkron 1962, 1968, 1977. produced 2Katzenstein 1977, pp. 295-336. Kurth 1979, 1-34. Zysman 1983. Snyder 1991. Haggard, Lee, and Maxfield 1993. version Digitised 3 Repository. industrialization hypothesis. The paper then develops the argument, first offering a

typology of political structures, and then developing successively how each political Research structure fared with respect to the two requisites for universal banking, market frag­

mentation and the liquidity risk respectively. The paper ends by testing the political Institute structure hypothesis against Gerschenkron's timing-of-industrialization hypothesis. University

Banking Specialization: Definition and Measure

The dependent variable is the degree of specialization achieved in the banking European sector—whether banks specialized in certain product lines or were jacks-of-all(- Institute. financial)-trades. In specialized banking systems some bankers lend long whereas Cadmus, on others lend short. In universal banking systems, banks lent both short and long. The University dependent variable can be represented graphically (Figure 1). Assuming that the Access average liquidity for the assets of a bank varies from 0 to 1, all the banks in a given European economy can be represented by as many points on an average liquidity axis. The typi­ Open cal distribution of banks in a specialized system should be bimodal, while that of a non- Author(s). specialized system, unimodal. Available

[ Figure 1 here ] The 2020. ©

Measuring such a distribution, however, is not easy, as banks grouped assets with in little respect for maturity and in ways that were not comparable across banks and Library countries. Furthermore, limited availability of bank accounts disqualifies random EUI sampling. The measure of banking specialization must instead be proxied. Two the

equally imperfect proxies will be used: the equitv-liabilitv ratio, which sacrifices by coverage to precision, and the equity-deposit ratio, which sacrifices precision to coverage. produced Both proxies are calculated on liabilities instead of assets. The liquidity of a

bank's liabilities is a good proxy for the liquidity of that bank's assets, since any version Digitised Repository. 4 serious mismatch between the two is bound, sooner or later, to end in ruin (through

insolvency if assets are less liquid than liabilities, or through insufficient profitability in Research the opposite case). Liabilities offer the advantage over assets that, unlike assets, liabilities tended to be arranged by most banks in most countries according to Institute liquidity—"capital" and "reserves" were very stable (they belonged to the bank), "inter­ bank deposits" and "positive current accounts," whether remunerated or not, were University moderately stable (they were corporate accounts used to finance daily transactions), and

"notes" and "deposits and savings accounts” were unstable (they were interest-bearing European placements, which could be cashed right away, although with a penalty for term deposits). Institute.

A rough and simple approximation of liability liquidity is the equity-liability Cadmus, on

ratio—the ratio of capital and reserves to total liabilities. Stable and profitable banks University typically finance long assets with their own resources (capital and reserves), and short Access assets with borrowed resources (notes, deposits). The relative importance of capital European Open and reserves combined (let us call it "equity") should thus reveal the overall liquidity of the bank. Because capital and reserves were almost standard entries across banks and Author(s). countries, the equity-liability ratio is easy to establish for a large population of banks Available The

and countries. The ratio, however, suffers one shortcoming: it assumes that all other 2020. © liabilities are liquid, when in fact, as already seen, interbank deposits and positive cur­ in rent accounts are more stable than notes, deposits, and savings accounts. Library The second ratio corrects for this imprecision. It is the ratio of the least liquid EUI resources (capital plus reserves) to the most liquid ones (deposits, savings, and notes, the when any). I shall refer to it as the equity-deposit ratio. by To understand why we must include notes in the numerator of the second ratio,

along with deposits, it is necessary to anticipate a bit on the next sections. Individuals produced did not start opening deposit accounts in banks other than savings banks til the 1860s- version Digitised 5 Repository. 1870s. Prior to then, banks used to finance short-term lending (discount) by issuing their own banknotes. And thus, the first universal banking system to ever exist, the Research Belgian one in the 1830s and 1840s, combined note-issuing with industrial promotion. Similarly, the Crédit Mobilier that the brother Péreires fancied, but could not Institute accomplish, was a mix of discounts, financed through note-(or look-alike bonds-

)issuing, and industrial promotion, financed through capital and reserves.3 It is only after banks managed to attract individuals' deposits and central banks were created to University monopolize note-issuing that deposits displaced notes in the financing of short-term

lending—and that universal banking came to mean the mix of short-term lending, European financed through deposits, and industrial promotion, financed through capital and Institute. reserves. It is on the latter type that this study focuses, in part because data availability Cadmus, improves toward the end of the period, and in part because there was only one clear on University instance of universal banking system of the former type—Belgium. However, not all countries had switched from the note-phase to the deposit-phase by the turn of the Access European century, and not to the same extent; hence the need to devise a measure spanning two Open different epochs of banking. Though more precise than the equity-liability ratio, the equity-deposit ratio, Author(s). Available however, suffers from limited coverage. Banks did not always differentiate between The 2020. current account deposits (for their corporate clients) and checking account deposits (for © in individuals), with the results that data are not always available.

The next step is to identify the banks for which to calculate the two ratios. The Library standard population is that of deposit-taking banks. With a few exceptions, deposit­ EUI taking banks were either deposit banks (in specialized systems) or universal banks (in the by non-specialized systems); they were not investment banks. A well-known exception is

France, where investment banks did take deposits-they are excluded from the present produced samples.

3Chlepner 1926, pp. 17-18, 414. version Digitised Repository. 6

The last question is one of comparability. Would not different countries at dif­ ferent stages of industrialization exhibit diverse average investment maturities, with the Research result that what would have been considered as "short" here might have been con­ sidered as "long" there? The answer is in the negative. "Short" had the same meaning Institute in every country for two reasons: first, short loans were designed to finance trade, in which all countries engaged. Second, depositors everywhere reacted alike to risks of University bankruptcy—by running to the bank to withdraw their money. The risk afferent to immobilization being the same in every country, the panoply of tools among which European banks could choose to provide against illiquidity was comparable across countries.

The equity-liability ratio and the equity-deposit ratio will thus be used to proxy Institute. the degree of specialization of a banking system. Specialization is a linear function of Cadmus, on

liquidity; this reflects the fact that investment banks are excluded from the national University samples. Access Results are shown in Table 1. As expected, the correlation between the two European Open ratios is high (the Pearson coefficient between the equity-liability ratio and the log of the equity-deposit ratio is 0.85). The data track the overall sense of the historians: at Author(s). one extreme, the specialized Anglo-Saxon banks (UK, Canada, and the USA), at the Available other the universal type (Germany, Italy, Austria-Hungary). The figure for Spain sug­ The 2020. © gests that Spanish banking in 1913 was an outlier, deserving special consideration—I in will reserve the Spanish case for the end. Library [ Table 1 here ] EUI Figures for 1890, in conjunction with 1913, reveal a trend toward greater deposit the banking (the two exceptions, Norway and Spain, are difficult to interpret, and probably by an artifact of measurement). From 1850 until 1913, joint stock banks in every country

were on a similar trajectory from investment (crédit mobilier') banking toward deposit produced version Digitised 7 Repository. banking. Explaining cross-national variations in banking structures in 1913 is

tantamount to explaining differences in national rates of change. Research Institute

The Timing of Industrialization Alexander Gerschenkron authored the most ambitious explanation so far offered University for why banking structures differed across nations.4 The more capital was needed in the shortest amount of time, he argued, the less could equity markets cope with the task of allocating long-term financial capital; instead, banks and state had to step in. Hence European the "orderly system of graduated deviations from [the first] industrialization": Institute. Cadmus,

The more backward a country, the more likely its industrialization was to proceed on

under some organized direction: depending on the degree of backwardness, the University

seat of such direction could be found in investment banks, in investment banks Access

acting under the aegis of the state, or in bureaucratic controls.5 European Open

More precisely, British industrialization was self-financed, manufacturers ploughing Author(s). back profits into their own factories; French industrialization (the 1850-1870 spurt) was Available

financed by investment bankers, who raised long-term capital and lent it to factories; The 2020. ©

German industrialization was financed by universal bankers, intermediating between in depositors and factories; while Russian industrialization was financed by the state, Library intermediating between taxpayers and foreign lenders on the one hand, and banks and EUI factories on the other. the

4One cannot easily do justice to Alexander Gerschenkron's contribution without recalling the debates of by the fifties between Marxists and non-Marxists (especially W. W. Rostow) on what it takes to industri­ alize and on whether industrialization engineers convergence among national economies. This, I will not do, as my goal is not to survey the extent of the contribution of a great thinker, but to isolate the few aspects of his work that are most relevant to my specific task. produced 5Gerschenkron 1962, p. 44. My emphasis. version Digitised Repository. 8 Several factors were responsible for the "organized direction” typical of late industrialization. Economies of scale, first. No single investor, Gerschenkron argued, Research had the capacity to finance large-scale, capital-intensive projects, which were character­ Institute istic late industrialization; only capital pools, mostly banks, could. A second rationale is sociological. The society of the late industrializer missed standards of honesty and

mechanisms for the enforcement of contracts that are usually required for the normal University working of the market; dealings had to be reserved to an elite of honorable individuals.

Politics, in Gerschenkron's argument, entered the picture as ultimate substitute for the European missing requisites: the state stepped in if the banks were unable to meet the demand for Institute. industrialization. Cadmus, Gerschenkron cast his argument at such a high level of abstraction, that critics on had no difficulties in pointing to historical exceptions. Among those, there is the University

obvious fact that not all backward economies did industrialize.6 Then there are cases Access

(Italy and Austria) that exhibited the traits of late industrialization, despite the fact that European Open their big spurt, by Gerschenkron's own admission, petered out. Finally, there is Den­ mark, an economy that grew faster than Germany in the prewar decades, developed Author(s). Available universal banking but no large-scale, capital-intensive industrialization.7 The 2020.

More damaging than isolated cases of empirical lack of fit, is the absence of © in decisive evidence for the occurrence of capital scarcity in some instances where

‘Gerschenkron himself grappled with the Bulgarian case, coining for the occasion the notion of "missed Library opportunity": EUI

...it is one thing to expect that, had a great spurt of industrial development the

occurred in Bulgaria, it would have in all likelihood proceeded under the strong by tutelage of the state. It is quite another to assume that the great spurt was

"bound" to occur. Gerschenkron 1962, p. 234. produced

7Paul Bairoch's (1993, p. 8) data for 1890-1913 show a 2.3 percent annual growth in GNP per capita for Denmark against 1.7 percent for Germany. On Denmark, see Gerschenkron 1962, pp. 16, 361. version Digitised 9 Repository. Gerschenkron explicitely claimed there was such scarcity. Few historians accept the idea that there was a capital shortage in Prussia in the first half of the 19th century-in Research fact, Prussia exported capital.8 Surely, this capital was not readily available for industry, investors preferring instead government bonds. It is in that sense only that Institute there was a scarcity of capital available for industry in those countries. Gerschenkron's explanation and the one propounded here agree on one thing: University universalism was a reflection of capital scarcity. Yet they differ on the origins of such scarcity. While Gerschenkron argues that capital scarcity reflected backwardness

and/or a spurt of industrial development, I will argue that it reflected market frag­ European

mentation. Institute.

Since Gerschenkron laid out his theory, there has emerged an additional potential Cadmus, explanatory variable—information asymmetry. The central idea is that in conditions of on University information asymmetry, banking monopolies are more efficient than equity markets.9 Access A financial intermediary can monitor a firm's management more effectively than a European small saver, because economies of scale in the acquisition of information lowers Open information-gathering costs for the former. Moreover, a universal banker can do the Author(s). monitoring better than a commercial banker, because the former has more dealings Available

with, and thus disposes of more information about, management than the latter. There­ The 2020. ©

fore, equity holders are better off delegating monitoring to a mixed bank. With in information asymmetry being steeper in backward than in advanced countries, one could thus explain why British banking differed from its continental equivalent. Library

However, information asymmetry as an explanation runs into questions of EUI the insuperable complexity. Since there is, to some extent, information asymmetry in all by banking structures, including the British one, then universal banking is always more

8Barrett Whale 1968, p. 11. Tilly 1967, p. 156. Schmoller 1904, Vol. n , p. 182. Hansen 1906, Vol. I, pp. 580-6. Beckerath 1954, pp. 7-14. produced 9See for example De Long 1991. Hoshi, Kashyap, and Scharfstein 1990. Lamoreaux 1991. version Digitised 10 Repository. efficient than British-type specialized banking. How then to account for the existence

of specialized banking? A successful comparative explanation, of course, would have Research to look at the downside of universal banking.10 It involves two monopolistic relations,

one between the bank and the equity holder, the other between the bank and the firm, Institute and these monopolistic relations are sources of inefficiency for both equity holders and firms. Moreover, universal banking carries with it the additional risk of insolvency.11 University Whether the monopolistic and solvency drawbacks merely balance or completely dwarf the informational advantages of universal banking is not something that can be adjudi­ cated a priori. A model able to handle such complex accounting must be built, and the European empirical estimates that would help us calibrate the various effects must be made. No Institute. such model exists yet, and the fact that information asymmetry is not directly observ­ Cadmus, on able may turn the process of calibration into guesswork. All these difficulties make University information asymmetry an unlikely contender to capital scarcity. Finally, even if the Access explanation could be built as a plausible contender to Gerschenkron's, like European Gerschenkron's, it would be subject to the objection that information asymmetry, like Open capital scarcity, may bave been an endogenous variable. I now turn to a line of argu­ Author(s). ment that would suggest that such was the case. Available The 2020. © in

Pluralist and Corporatist Political Structures Library Political structures can be of two kinds-pluralist and corporatist—depending on EUI whether the unit of political representation is the individual or the group. A pluralist the

polity is one in which the unit of political representation is the individual; encompass­ by ing groups of any kind, be they factors, ethnies, locales, regions, or any other ter­ ritorial subset enjoy no special political rights. Although individuals may form (inter­ produced

10Among those who have begun to do that, Jeremy Edwards and Klaus Fischer 1993. n This point is developed below. version Digitised Repository. 11 est) groups to defend more effectively their personal interests, in the absence of any

official recognition, the formation of these groups is subject to the dilemma of collec­ Research tive action, with the well-known result that only relatively small and concentrated groups ever manage to organize, and never for very long.12 Institute

In contrast, a corporatist structure grants political rights to encompassing groups. This may take the form of a government setting up a system of so-called "neo- University corporatist" concertation between organized labor and organized capital, as it existed recently in countries where social-democracy was dominant;13 or the form of federal­ European ism, that is, the privileged representation of territorial subsets, often through the con­ traption of powerful second chambers; or of "consociationalism," a government of Institute. elites each representing different ethnic groups in society.14 In all these cases, state Cadmus, on

recognition gives the leader of each encompassing group power over the allocation of University

state resources, effectively guarding the groups against the dilemma of collective Access action. The legitimacy of a corporatist system lies in its capacity to maintain a fair European Open balance between groups, through means of logrolling, proporz. lotizazione. clientelism. The protagonists of political representation in the last century belonged to one of Author(s). two categories-the state-building center and the antistatist periphery. In the industri­ Available The

alizing West, the center was industrial, including the new, large, vertically integrated 2020. © in firms while the periphery was agrarian, constituted of land-abundant areas with small, indigenous firms, embedded in, and serving the industrial needs of, local areas.15 In Library Britain and France, where state formation was early and complete by the century, the EUI

pluralist principle dominated. Elsewhere, where state formation instead was late or the incomplete, as such was the case with empires, federal states, or states whose party by

1201son 1965. 13Schmitter 1981.

14Lijphart 1977. produced 15Workers did not form an autonomous group yet, but were either part of the capitalist center or of the agrarian periphery depending on who employed them. See Lipset and Rokkan (1967). version Digitised Repository. 12 system was cleft by a center-periphey cleavage, the polity rested on bargains, brokered Research between leaders of pre-organized groups, arranged along class or territorial lines. The political representation of the agrarian periphery in corporatist systems took Institute two forms depending on the strength of the relative weakness of the center. Where the center was very weak, the agrarian periphery was represented territorially, through a powerful high chamber to which each locale appointed its own delegates. In contrast, University where the center was weak, yet threatening enough to require the periphery to collec­ tively organize in order to check centralization, the agrarian periphery was represented European functionally, that is, through an agrarian political group, be it a party, a faction of a Institute. conservative party, or a transpartisan parliamentary bloc. In other words, functional Cadmus,

(or class, or partisan) representation was a weaker form of representation of agrarian on peripheral interests than territorial (or federal) representation. I will refer to the func­ University tional variant as "moderate" corporatism and to the territorial variant as "excessive" Access

corporatism. European Open The territorial variant of corporatism took the institutional form of the federal, democratic state-Switzerland, the United States, Canada, Australia, and New Zealand. Author(s). Available The functional variant did not take any definite constitutional form; in Scandinavia, it The 2020. materialized in the form of a third, agrarian party, arbitrating between conservatives © in and liberals (later on socialists). Elsewhere, it took the form of an informal agreement

between capitalists and agrarians, mediated either by an authoritarian ruler, as in Library

Holland-Belgium before 1830 and Germany and Austria-Hungary after 1870, or stal­ EUI wart politicians, as in Spain and Italy at the turn of the century.16 the by Distinct representational principles generally have distinct redistributional con­ sequences. In the pluralist model, the relative importance of state and market is governed by the extent of rent seeking. Rent seeking features tenure-maximizing produced

16The instances of functional corporatism will be further detailed below, in the discussion of central

banking. version Digitised Repository. 13 government officials selling policies (called "rents") to wealth-maximizing individuals

in exchange for political support. Rents are monopoly rents, redistributing income Research away from the unorganized to the cartelized. Only individuals whose interests are suf­ ficiently concentrated for them to overcome the dilemma of collective action and to Institute lobby politicians directly can extract significant rents. The rest of the people subsidize rents. University In the corporatist model government officials also grant favorable policies to groups in exchange for political support. These policies, however, are not rents in the European redistributional sense of the term. With most individuals enrolled in one of the con­ tending groups, almost everyone has to pay for the policies, with the result that the Institute. invisible redistributive effect, the one which, in the pluralist model, operates surrep­ Cadmus, on

titiously at the expense of the unorganized, is close to nil in the corporatist model. University Rather than rents, these policies are better understood as "market s h a r e s each group Access obtaining exclusive authority over the allocation of resources in a particular market or European Open geographic area. Rent seeking and market competition (typical of pluralism) characterized bank- Author(s). state relations in pluralist regimes. Pluralist governments shunned from systematic Available The

intervention, being content with granting privileges to individual banks, privileges 2020. © which these banks would use to thwart competition from other banks. The standard in outcome was the centralization of all privileges into one so-called "central bank,” Library enjoying a monopoly of note issuing, at the expense of other banks and forms of bank­ EUI

ing. The centralization of rents destroyed peripheral forms of banking (nonprofit and the local) and opened commercial banking to market competition, since all banks, except by for the central bank, had to compete by means of cost cutting and product innovation.

Able to successfully check any further governmental extension of the central bank's produced privileges beyond that of note-issuing, joint stock banks after 1860 used product version Digitised Repository. 14 innovation (demand deposits) to weaken the market power of the note-issuing monop­ oly. Research Market sharing and state regulation (typical of corporatism), in contrast, charac­ terized bank-state relations in corporatist regimes. Corporatist governments granted Institute rents to almost all existing banks, including those serving the needs of the agrarian

periphery—nonprofit or local. Each bank belonged to one of two groups, the banking University group of the center, dominated by the joint stock banks, and the banking group of the periphery, dominated by savings banks in the functional variant of corporatism, or by European local commercial banks (of which some enjoyed issuing rights) in the territorial variant. Institute. The relative market share of each group was not left to market forces, as such was the Cadmus, case in the pluralist setting, since market forces would have inevitably led to the on domination of the periphery by the center, an outcome which, given the corporatist University

make-up of the state, was politically unacceptable. Market shares, instead, were Access administered by the state, according to standards of fairness and political expediency. European Open The corporatist state sought to maintain a kind of balance between banking groups through a mix of policies including (1) protection of the market share of the local com­ Author(s). Available mercial and/or nonprofit banking sector, and (2) the granting of central banking The 2020.

(defined as last-resort lending) to the profit banking sector in functional corporatism. © in Pluralist states did not use either policy tool, with the result, as I will show, that

the nonprofit and local commercial sectors vanished and central banking (notwithstand­ Library

ing the existence of a "central bank”) did not materialize until after World War I. EUI

Universal banking, I now show, was the result of the two policy tools combined. the by Only the simultaneous pursuit of both policies could yield the two requisites of universal banking, that is, the fragmentation of the deposit market and the existence of

a liquidity guarantee. produced version Digitised 15 Repository. Research The First Requisite of Universal Banking: Fragmentation of the Deposit Market It is necessary first to recall the banking structures that Western countries Institute inherited from the early part of the century as well as the secular trends to which capi­ tal markets were subjected. The first half of the nineteenth century was the era of pri­ vate bankers and savings banks. While the Barings, the Rothschilds and their like University catered to the needs of governments and the wealthy, savings banks were nonprofit organizations, created by philanthropic individuals or local governments to instill the European saving habit among the urban poor.17 The two markets were separate, resorting to dif­ Institute. ferent financing techniques: private bankers used their own resources, augmented with Cadmus,

those of their direct clients, in order to, primarily, issue government bonds. Savings on University banks, instead, took the savings of a great number of individuals, investing the pro­ ceeds into safe, government paper. Access European

By mid-century private bankers got involved in the financing of railways first, Open and the new industries soon after. Throughout Europe, private houses joined efforts to establish investment banks (crédits mobiliers! and, when the legislation permitted, joint Author(s). Available stock banks with limited responsibility. Savings banks also went through a major The 2020. reorganization. Strained by the general depreciation of government paper, which they © in were obliged to carry, they were the object of stepped up regulation, placing them

under the tutelage of central (France, Belgium) or local (Germany, Austria-Hungary, Library

Denmark) governments.18 The mid-century also saw the creation of mutual credit EUI societies-nonprofit cooperatives-created by artisans, merchants, and small business, to the by whom the joint stock banks would not lend. Mutual credit societies also developed in rural areas, among local farmers, alongside long-established mortgage associations.19 produced 17Chlepner 1926, p. 96. Nygren 1983, 42. Bom 1983, 109-110. Polsi 1993, 193 18Hansen 1982, 582 and after. In Italy, this reorganization occurred in 1876. l9On German credit cooperatives, see Guinnane 1995. version Digitised Repository. 16 Mid-century industrialization radically transformed the way the haute banque financed its assets. Until then, there were only two major ways of procuring capital in Research large quantity—note-issuing, which in many countries already was, or about to become, Institute the monopoly of a central bank, and equity. The widespread pratice of opening indi­ vidual deposit accounts for checking and savings purposes, as we know it today, did

not exist yet-payments, and savings as well, often took the form of cash. As the bene­ University fits of industrialization began to penetrate deeper into the middle strata, however, the demand for deposit accounts, short and long, grew to a point that it became thinkable European for bankers to finance lending with deposits taken from numerous individuals with Institute. whom they had no prior or other dealings. The motivation was profit, as deposits were Cadmus, less costly to remunerate than equity. The emergence of deposits revolutionized bank­ on ing, causing a global trend toward deposit banking. Even though most of them had University

been created in the wake of mid-century industrialization to operate as investment Access banks tcrddits mobiliersl. joint stock banks rushed to reap the new bonanza. European Open However, joint stock banks did not manage the conversion to deposit banking with uniform ease and to the same extent. The unleashing of what used to be the dis­ Author(s). Available tant haute banoue into deposit banking threatened to throw the local commercial banks The 2020. and the nonprofit sectors, savings banks especially, out of business. Left to the inter­ © in play of market forces, the joint stock banks would have swept the field, drawing

depositors from savings banks and mutual credit societies, taking over local commercial Library

banks, and forcing the rest out. The general surge in deposits threatened the unification EUI

of two banking sectors which, until then, had been kept separate—banking for the the by wealthy and the territorially concentrated, and banking for the less wealthy and for the dispersed-under the exclusive auspices of the newly created joint stock banks, at the expense of the old, government-supported local, nonprofit banks and the local commer­ produced cial banks. Where joint stock banks were allowed to develop unhindered, they turned version Digitised 17 Repository. into deposit banks, developing dense networks of local branches, and leaving the busi­

ness of investment banking to institutions especially created for that purpose—trustee Research banks, investment banks, the stock market. They abandonned the field of investment banking altogether in order to match the maturity of their assets with that of their Institute newly-gained short liabilities. The outcome was specialized banking. The nonprofit sector languished, surviving only in the form of postal savings or other government University savings banks established by, and for the profit of, the central government; and local commercial banks fell to vertical concentration. European Wherever they could, nonprofit and local sectors reacted, and in those countries where they enjoyed strong political support, that is, in corporatist regimes, they Institute. managed to retard the joint stock banks' inroad into savings deposits. Nonprofit bank­ Cadmus, on

ing enjoyed government support in systems of functional representation (moderate cor­ University poratism), while local commercial banking emjoyed similar support in systems of ter­ Access ritorial representation (excessive corporatism). State intervention through the granting European Open of rents as diverse as tax-free status, subsidies, government-guarantee for bonds, monopoly over the issuing of small notes, or limitations on branch banking and other Author(s). territorial protection against market competition, allowed these peripheral forms of Available banking to maintain their activities.20 Since nonprofit banking and local commercial The 2020. © banking were in competition for local deposits, depending on which was protected, it in tended to crowd out the other. Library State protection of local or nonprofit banking fragmented the market for individ­ EUI ual deposits. Although local commercial banks would often open clearing and deposit the accounts with the center commercial banks, therefore investing in the financial center by part of the deposits that they had drained from their local clienteles, such practice was

bound to be residual and strictly limited to what was required to interbank compensa­ produced

20Marz 1984, p. 39. Deeg 1992, 77. Hansen 1982, 590. Polsi 1993, 234, 249. version Digitised Repository. 18 tion, as it earned very little.21 The fragmentation was equally pronounced in the case Research of nonprofit banks, where, in some cases, double intermediation was not even a pos­ sibility. In countries of Germanic background, less so in Italy, savings banks and Institute mutual credit societies created their respective clearing systems, first at the regional level, then at the national level, separate from the profit sector.22 In all cases, the

deposits collected by local and nonprofit banks were "lost" for the center banks. University

Deposits being the main and ever growing resource for banks, the fragmentation of the deposit market, where it obtained, not only sanctioned and reinforced the frag­ European mentation of the financial system between a money center and its periphery, but also of Institute. industry at large into two separate industrial orders: that of large, national firms and Cadmus,

that of small, local firms. The fragmentation of the deposit market sanctioned and on reinforced the duality of the industrial process, which students of industialization have University recently rediscovered in Germany, Denmark, Italy, and so on, with a national track Access

featuring large, concentrated, vertically integrated companies (the "autarkic industrial European Open order," in Gary Herrigel's terminology), and a regional track featuring small, decentralized, locally-embedded companies (the "decentralized industrial order”).23 Author(s). Available The fragmentation of the capital market was conducive to universal banking. The The 2020. causal mechanism was an instance of Adam Smith's famous theorem that the division © in of labor is limited by the extent of the market.24 The joint stock banks were on a

secular trajectory running from investment banking, when they exclusively catered to Library

new and concentrated industries, toward deposit banking, when they would mostly EUI cater to small depositors. If frozen in mid-course, these center banks were bound to the by 21Only in the United States, where national banks were required by federal regulations to keep part of their assets frozen in the form of reserves, did it make economic economic sense for banks to deposit these sums in money center banks. 22Deeg 1992, p. 69, 81, 84, 94; Marz 1984. «Herrigel 1996, pp. 1-2. Building on the pioneering work of Piore and Sabel (1984), the literature on produced industrial dualism is now voluminous. For two recent contributions, see Deeg (1992) and Herrigel (1996).

«Smith 1976, p. 21. version Digitised 19 Repository. cater to a wide clientele of large, industrial depositors, while local commercial or non­

profit banking would comer the market for smaller depositors. Unable to fully capture Research the field of deposit banking, joint stock banks were forced to keep relying on their own

resources to a broader extent than pure deposit banks. Consequently, they could not Institute vacate the field of investment banking, a more profitable, though riskier business, because of the greater cost of their resources. In contrast, the opportunity to drain the University periphery from its savings was the driving force behind British and French joint stock banks' rush toward deposit banking and the consecutive consolidation in these two countries of specialized banking. European

This is how universal banking coincided with a very close association between Institute. banks and industry, in both center and periphery.25 In the center, first, joint stock Cadmus, on banks kept close relations with large firms. Hampered in their capacity to collect indi­ University viduals' savings, the joint stock banks of Belgium, Germany, Austria, Italy, and to a Access lesser extent Switzerland, Denmark and Sweden were naturally forced to maintain a European strong presence in industry, in which they found both their most profitable lending Open opportunities and their most abundant sources of deposits.26 Author(s). In the periphery, second, local banks collected local deposits which, for lack of Available

other options, they were inclined to invest in the area where they were located. Local The 2020. © firms, meanwhile, found local banking houses more reliable, though dearer, than joint in stock banks. This was true with respect of local commercial banks, but of savings Library banks and credit societies as well, which followed the financial needs of their local EUI clients by progressively expanding their banking activities in the bordering realms of the

commercial and investment banking. The rationale is easy to intuit. By keeping joint by stock banks out of entire regions, social strata, or sectors of activity, and thus de facto turning peripheral banks into local monopolies, state intervention created the need for produced

“ Levy 1935. “ Riesser 1911. version Digitised Repository. 20 peripheral banks to fill in. The most dramatic consequence was the transformation of

the private nonprofit sector into regular commercial banks. In Scandinavian countries Research first, and Germanic ones then, savings and credit associations expanded their activities to commercial banking in relation to their own clients.27 The growing competition of Institute the non-profit sector was generally opposed by the joint stock banks, denouncing the unfair advantage enjoyed by non-profit banks, but was ratified by legislators and state University regulators who were favorable to the non-profit sector and their clients.28

In contrast, deposit banking as it developed in Britain and France, led banks to European estrange themselves from industry, in both center and periphery. In the center, banks Institute. could not afford to immobilize liquid deposits into illiquid placements, but were driven instead to emphasize safe and short placements, in the form of either commercial paper Cadmus, on

or government-guaranteed bonds. Firms relied on equity and plown-back profits. In University

the periphery, second, the joint stock banks diluted the depositor-creditor coupling, by Access transforming local banking into the collection of local resources, which would then be European Open channelled to, and invested in, "center investments," especially government paper, stock market call loans, and rediscountable commercial paper.29 Author(s). Universal banking brought bankers and industrialists together into a coherent cap­ Available The

italist class, although it excluded from the class its peripheral elements. Specialized 2020. © in banking, in contrast, brought the capitalist periphery under the aegis of the center, but split the capitalist class into bankers and investors or, more generally, product (or sec­ Library tor) lines. EUI

A look at the crossnational data on the market size of nonprofit banking the

(unfortunately no equivalent data on local commercial banking are available) confirms by

27Hansen 1982, p. 583, 589. Feldman 1991, 69; Deeg 1992, 73-79. Michel 1976. Nygren 1983, 33, 43- 44. Nordvik 1993, 69; Egge 1983, 281.

28No such universalization occurred among savings and credit associations in countries where the state produced declined to protect banking in the periphery. There, the non-profit sector limited itself to its initial format. "Cottrell 1992. Bouvier 1968. version Digitised Repository. 21 the hypothesis that state intervention in favor of nonprofit banks had no trivial impact

on the respective market shares of the profit and nonprofit sectors (savings, credit Research societies, and postal service). Where savings and cooperatives were left unprotected,

they got the smallest share of the market: 19 percent of total deposits (excluding central Institute bank) in Britain, out of which 14 percent of postal savings; 9 percent in Canada, out of which 4 percent of postal savings (Table 2). In contrast, where the non-profit sector University was promoted by the state, it dominated the field: 78 percent in the Austrian part of

Austria-Hungary, out of which 6 percent of government bank savings; 73 percent in European Italy, out of which 32 percent of postal savings; and 67 percent in Germany, all pri­ Institute. vate. The divergence is as stark when expressed in total assets; the total assets share of Cadmus, the non-profit sector was in percent: Canada: 2; Britain: 10; Italy: 49; Germany: 65 on

(no data are available for Austria). University

[ Table 2 here ] Access In sum, universal banking was forced upon joint stock banks by the fragmentation European Open of the deposit market. This fragmentation was caused by state protection of nonprofit banking. However, the fragmentation of the capital market does not constitute the Author(s). whole story. Although conducive to universal banking, the lack of access to peripheral Available The

banking did not always lead joint stock banks to universal banking—wit the cases of the 2020. © in U.S., Canadian, Australian, New Zealandese, and Norwegian banks. A second condi­ tion had to be met as well for this to happen: central banking. Universal banking is an Library unsustainable form of banking, unlikely to last for very long without the liquidity EUI

guarantee of a central bank. the by

The Second Requisite of Universal Banking: Central Banking produced

Specialized banking, in and of itself, is a stable equilibrium; universal banking, however, is not. This is the lesson that governments drew from the Great Depression. version Digitised Repository. 22 There would be no need to belabor the point had apologies for universal banking, usually building upon information asymmetry models, not resurfaced.30 According to Research that literature, information asymmetry about firms' profitability makes mixed banking Institute (the act of combining short with long assets) a more efficient form of investment than specialized banking, with long term finance allocated through the stock market. This

result, I show, is not very robust. In the following, I sketch the reasons for why, University under additional conditions of generalized imperfect information about bank-asset liquidity, banks should specialize. European Consider indeed the two balance sheets of two imaginary mixed (non-note­ Institute. issuing) banks in Figure 2. Bank "A-'s balance sheet is clear: half of the assets are liq­ Cadmus,

uid, the other half is illiquid. Each type of asset is proportionally financed by liquid on and illiquid liabilities. Bank ”B'"s balance sheet is unclear: only a fifth of the assets University are illiquid and a fifth are liquid. The other three-fifths are neither illiquid nor liquid Access

(nor in-between)—they could be either depending on whether the financial market is European Open buoyant or stagnant. If buoyant, the bank can easily liquidate these assets; if stagnant, it can't sell but at an unacceptable loss. In other words, the degree of liquidity of the Author(s). Available assets in the gray area is a positive function of the business cycle. The reverse is true The 2020. on the liability side. Again, one-fifth of the liabilities are illiquid (capital), one-fifth © in liquid (acceptances, checks dues), and three-fifths illiquid or liquid depending on

whether lenders are optimistic or pessimistic about the economic outlook. The prospect Library

of a buoyant market makes lenders willing to keep their money in the bank, whereas EUI

the prospect of a downturn incites them to liquidate their deposits. The degree of the by liquidity of the liabilities in the gray area is a negative function of the business cycle.

In sum, variations in the business cycle force the liquidity of assets and liabilities in opposite directions. produced

30See for example De Long 1991. Hoshi, Kashyap, and Scharfstein 1990. Lamoreaux 1991. version Digitised Repository. 23 [ Figure 2 here ]

If we now ask whether "A" and "B" should specialize, then it is clear that "A" Research need not specialize. In the worst situation, it will have to reimburse all depositors by calling on all its debtors. The solvency of "A”, thus, is not affected by changes in the Institute business cycle. "B"'s solvency, in contrast, is affected by the business cycle. When the economy is booming and the financial markets are flushed, "B" finds itself with lots University of liquid assets being financed by lots of stable (illiquid) liabilities—it is potentially losing money, for not making an optimal use of its liabilities (like "D"). In contrast, European when a crisis is pending and the financial market chills, then that same bank is now insolvent; four-fifth of its liabilities are liquid whereas four-fifth of its assets are frozen Institute.

(like "C"). Cadmus, on

Bank "B" cannot easily guard against the risk of insolvency because no one can University forecast the degree to which the next crisis will melt liabilities and freeze assets; it Access depends on the intensity of the crisis. A small chill may merely realign assets and European Open liabilities along the fifty-fifty line, making "B" like "A"; a bigger chill will cause insolvency. Further, once started, the panic develops its own dynamic. "B” does not Author(s). know what a priori could be a safe ratio, and neither does the investing public, with the Available result that "B" is shunned by risk-averse depositors. The 2020. © The reasoning, so far, has borne on imaginary banks. It remains to determined in whether tum-of-the-century practice was closer to type "A” or to type "B". Did most Library assets and liabilities of mixed banks fall into the gray area? The answer is in the posi­ EUI tive. In their attempt to attract business, banks engaged in product diversification on the both sides of the balance sheet. They developed new instruments with variable by liquidity. Discounts were progressively replaced by advances on current accounts, sub­

stituting for a rigid 90-day loan one that was flexible and could effortlessly be produced prolonged. Advances against stock exchange securities could be temporary or version Digitised Repository. 24 permanent, depending on the health of the stock market; while deposits with all kinds of terms could all be withdrawn at a moment's notice against a penalty of which the Research amount reflected the length of the otherwise-due advance notice. Hence, current Institute accounts, advances, and deposits were both elastic and sensitive to the business cycle. The appearance of these new instruments further compounded the difficulty by

making balance-sheets practically useless in revealing the actual solvency of a bank, all University the more so that they were regularly window-dressed to hide profits from shareholders and fraud the fisc. To the extent that official reporting became the basis for internal European accounting, assessing the actual liquidity of assets became intractable for both insiders Institute. and outsiders. Contemporaries could only tell post facto, after crises weeded out Cadmus,

insolvent banks. The impenetrableness of balance sheets removed an important means on that bankers needed to elicit their clients' trust—the capacity to commit to certain University

liquidity targets. Absent such a commitment, depositors could not but suspect that Access

mixed banks were placing the interests of the industries in which bank directors had European Open vested interests above those of the banks' depositors. Universal banking was therefore unstable. The unpredictability of crises, com­ Author(s). Available bined with the sensitivity of most assets and liabilities to the business cycle, made The 2020. universal banks unprofitable during booms and insolvent during slumps. Specialization © in à la française was a more stable equilibrium. Following a couple of notable crashes,

banking strategies in France forked in two opposite directions-investment banking and Library

deposit banking.31 Investment banking implied the placement of long-term resources EUI

into high profit, high risk ventures. Revenues were irregular, but average profits and the by dividends were high. The bank would only take deposits from reliable depositors, mostly its correspondents and partners in issuing syndicates and the few companies in which it held long-term participation. In contrast to investment banking, deposit bank- produced

3ISee Bouvier 1968; Lévy-Leboyer 1976. version Digitised 25 Repository. ing thrived on sight deposits collected from the masses of small savers through thick

networks of bank branches. The bank would invest these deposits in short-term, self- Research liquidating credits to commerce and industry, and in the promotion of government (or

government-guaranteed) issues. The placement of safe paper among its wide clientele Institute of small depositors would also earn the deposit bank lucrative commissions. Profit margins were slim, but volume was massive and revenues were regular. Investment University banks would maintain close, long, and personal relations with borrowers; deposit banks were content with hands-off, short, and mediated contacts. These opposite forms of banking were more stable than mixed banking. Investment banks were not subject to European depositors' runs, since they had no depositors outside a small network of reliable Institute. clients; while deposit banks were not subject to runs either, because most of their assets Cadmus, on were kept in cash, rediscountable paper, government bonds, money at call, and other University disposable assets. Access From the foregoing analysis it follows that the existence of universal banking can European only be found in the existence of a non-market mechanism that tided banks over in Open periods of financial emergency by maintaining the liquidity of their assets. That Author(s). mechanism took the form of a central bank engaging in the practice of lending of last Available resort (central banking). A central bank could guarantee the liquidity of bank assets by The 2020. © accepting to rediscount commercial paper at all times, at reasonable rates. By keeping in bank assets liquid, the central bank would then keep liabilities stable, as depositors' Library fear of insolvency would diminish. Runs on banks would not materialize. EUI Although most of the countries studied here had central banks in operation by the

1913 (the United States, Canada, Australia, and New Zealand excepted), not all of by them engaged in lending of last resort with the same equanimity. In fact, one can say that until 1900, there was an almost inverse relation between the age of a central bank produced version Digitised Repository. 26 and that of central banking-the older the central bank, the later a bankers' bank. This Research is the point of the next section. Institute

The Origins of Central Banking

Central bank and central banking are nowadays synonymous. However, central University bank, a bank with a note-issuing privilege of some sort, and central banking, the institutionalization of lending of last resort, have quite different origins.32 Initially, European central banks were the protagonists of the pre-19th century "fiscal-military states," the Institute. story of a quid pro quo between self-maximizing financiers worried about the state Cadmus,

encroaching their property rights, and warrying princes anxious about cash.33 The on prince granted a rent to a syndicate of wealthy individuals in exchange for easier and University more regular access to finance. Central banking, in contrast, became universal in Access

response to the Great Depression of the 1930s. In-between, from 1815 until 1914, cen­ European Open tral banking was adopted in some countries only. These were the countries where the fiscal-military model was side-tracked by considerations of a domestic order. The most Author(s). Available important question for corporatist states confronted with the advent of democratization The 2020. was not to finance war, but to maintain peace and order in the face of threats of class © in conflict and territorial secession.

Not all corporatist regimes adopted central banking, however. On the one hand, Library

central banking was the just price that corporatist regimes paid to elicit support from EUI

large banks, negatively affected by the promotion of peripheral banking. (In countries the by of specialized banking, bankers had no really felt need for central banking until the unprecedented crash of the 1930s elevated last-resort-lending to the status of a dogma.)

32The present definitions are borrowed from Goodhart 1988. produced 53The 'fiscal-military state' category is borrowed from John Brewer 1989, and North and Weingast 1989. version Digitised 27 Repository. On the other hand, not all corporatist regimes could adopt central banking. Central

banking had redistributional consequences favoring the center at the expense of the Research periphery. As a result, whenever the periphery was strong enough, it prevented central

banking. I further develop these points. Institute Central banking had negative redistributional consequences of two types on the periphery. First, central banking siphoned off resources into the profit sector. By University making deposits safer than they would be otherwise, central banking allowed mixed banks to attract more deposits for the core, at the expense of peripheral sectors.

Second, central banking externalized the burden of solvency. In the fiscal- European military model, where the central bank resisted from extending a sweeping liquidity Institute. guarantee to joint stock banks, the cost of solvency was indirectly borne by the joint Cadmus, on

stock banks, in the form of precautionary reserves and a large number of assets kept University relatively liquid in cases of an emergency. Since the banks had to shun long-term Access immobilization so as to remain liquid, potential borrowers (firms) had to look for long­ European term credits elsewhere (investment banks and the equity market), for which they paid Open the full market price for long-term capital. Consequently, user assumed their own sol­ Author(s). vency risk, firms by borrowing long and dear, and banks by lending short and on thin Available margins. The 2020. ©

The redistributive implications of central banking were rather different. The in liquidity guarantee extended by the central bank disinclined commercial banks to build Library cash reserves, as the central bank was pledged to rediscount commercial and financial EUI paper under almost any circumstances. Commercial banks could afford a greater share the of illiquid, yet profitable assets; while investment banks could afford to enter into the by less profitable, but more stable, field of commercial banking. The banks' greater

readiness to immobilize their assets might also benefit borrowing firms if competition produced among banks led them to dissipate the extra profits among their clients. version Digitised Repository. 28 If the banks or firms of the corporatist model benefited, then who lost? The

immediate losers were the central bank's shareholders, who, sooner than later included Research the state, and thus, the taxpayers. Indeed, to see illiquid banks and firms through a Institute financial crisis without suspending convertibility, the central bank needed to increase at regular intervals its investments in gold and currencies (on the assets side), and thus its

own resources (on the liabilities side). It could not increase its earning assets by an University equivalent proportion without taking it away from other banks. The alternative solution was to have the state provide extra capital, become the principal share-holder, and raise European taxes to pay for the loss in earnings. Among these taxpayers, were the agrarians, who Institute. were unlikely to agree to modify the initial compromise in favor of commerce and Cadmus, industry without extracting an equivalent compensation for themselves, sometimes in on

the form of below-market rate loans to agriculture. University

As a result, whenever the periphery was strong enough, it prevented central bank­ Access ing. The periphery would only consent to a govemment-run central bank, to which European Open money center banks were adamantly opposed. In a country like Germany, where state building was too advanced for the periphery to oppose the creation of a privately- Author(s). Available owned central bank, the agrarians kept pushing for ever closer state regulation. In con­ The 2020.

trast, in countries of incomplete state building, agrarians favored free banking, with © in several banks engaging in note-issuing, each within its own region of operation.

Hence, although with time, war, and crash all central banks endorsed central Library

banking, while countries without central banks ended up chartering one, the conditions EUI

in which these happened differed, falling into three broad categories: (1) where the cen­ the by ter dominated (pluralist polity), there was an early central bank but late central bank­ ing; (2) where center and periphery balanced each other (moderate corporatism), cen­

tral banking came early, with the central bank sometimes preceding, sometimes being produced contemporaneous with central banking; (3) where the periphery dominated (excessive version corporatism), central banking came late and so did the central bank. Digitised 29 Repository. The rest of this section reviews the evidence, which is essentially of a qualitative nature. Research Pluralist Countries: Early Central Bank, Late Central Banking. Almost all

central banks that existed before the 19th century (in Sweden, England, Spain, Prussia, Institute

France, and Austria) were instances of the fiscal-military state model: central banks were chartered by centralized states in need of funds, usually to field large armies or University costly navies. The only exception seems to have been the Bank of Amsterdam. Only in a handful of countries (Britain, France), however, was this model, and the central bank it begat, still relevant in the 19th century. European

The wars of the seventeenth and eighteenth centuries obliged European monarchs Institute.

to scramble for fresh sources of revenue. In their efforts to raise taxes and loans, they Cadmus, on had to concede liberties to their wealthiest subjects, along with banking privileges. The University scope of these liberties varied, yielding two distinct sub-models-the English and the Access French. England was the first to engage on that path, adopting parliamentary rule in European 1688 and founding the Bank of England in 1694.34 The Bank was granted special Open banking privileges, later renewed and augmented, depending on the necessity of the Author(s). treasuries. Available

French kings were more adept at parcelling privileges and playing off interests The 2020. © against each other. What they gave with one hand, they would retake with the other. in

The end-result was an inefficient tax system and, in 1789, a political meltdown.35 Still, Library the French maintained their distinct pattern. Soon after the Revolution, the Bank of EUI France was founded under Napoleon to finance the war with Britain.36 Its privileges the

were augmented until it reached a monopoly as bank of issue in 1848. But the state by

34On Britain, see Brewer 1989, Sacks 1994, Jones 1994, North and Weingast 1989, and Broz 1995, eh. 6. 3SOn France, see Hoffman and Norhcrg 1994. 36Kaiser (1990, p. 215) argued that French revolutionaries fust and Napoleon then engaged in war for produced financial reasons. version Digitised Repository. 30 kept interfering with the policy of the bank in matters of rate setting, branch expansion, and lending, usually to meet simultaneous pledges to other particular interests. The Research bank never was as independent from the government as the Bank of England was; its monopoly instead was constantly subject to renegotiation. Institute The banking structure that came out of this fiscal-military model was shaped by

the central bank's strategy of defense of its monopoly rent, exclusive in Britain, while University complicated with government interference in France. The Bank of England was a profit-making institution, embattled on both sides of its balance sheet. On the liability European side, it sought to make its note-issuing monopoly absolute,37 opening costly branches in Institute. the province only when abstaining from doing so would threaten its monopoly.38 When Cadmus, deposits dwarfed notes in importance, the bank began to pay interest on deposits.39 On on the assets side, the Bank of England was in competition with other banks for prime University

commercial paper and, later on, loans to the stock market.40 The profit motive had Access three consequences with respect to last-resort lending. First, the bank was most dis­ European Open inclined to extend a liquidity guarantee to other banks, making it instead a matter of personal discretion. The bank was obviously reluctant to finance the competition of the Author(s). Available clearing banks.41 Second, the bank did not have to engage in last-resort lending, as the The 2020.

solvency of the banking system was guaranteed by other means-unable to count on the © in guarantee of the central bank when in need of it, the clearing banks became self-reliant.

Last, the bank could not engage in last-resort lending had it wanted to. The bank was Library helpless against the moral hazard involved by lending of last resort, given that it EUI

37See White 1984. the 38Ziegler 1990, pp. 131-34. by 39De Cecco 1974, p. 98. 40Sayers 1976, Vol. I, pp. 17-27. The Bank of England did not compete in the field of investment bank­ ing, not because it was owned by private bankers already active in investment banking, but because long positions reduced its capacity to adjust to quick variations in the exchange—the note-issuing monopoly did not extend beyond national borders. produced "’Ziegler 1990. Tilly 1989, p. 198. version Digitised 31 Repository. enjoyed no supervisory powers over its rivals, and its moral leadership did not extend

beyond the "inner circle of the City" (the accepting and discount houses).42 Research

The Bank of France evinced competitive traits in ways similar to the Bank of

England. The Bank of France was run by the members of the private and haute ban­ Institute que; never did a representative of the deposit banks become a director. The bank viewed the Crédit Mobilier (allegedly the first French universal bank, although in prac­ University tice it remained an investment bank) as a competitor, deemed universal banking doomed, and from 1870 until 1938 competed with the banques de dépôts for prime commercial paper.43 However, the state had to accommodate other rent seekers: mer­ European chants and small businessmen who would not endure steep hikes in the bank rate Institute. without threatening another 1848 revolution, provincial towns which were asking for a Cadmus, on branch, railway bondholders who were threatening to snub further railway issues, University banks that were too big to fail, and so forth.44 As a result, the government regularly Access interfered with the bank's English ideal, obliging it to reduce its bank rate, keep it European steady, rescue competitors, build a strong gold reserve, and so forth, constantly Open relativizing the share-holders' profit-maximizing preferences.45 To discharge its state- Author(s). imposed tasks without risking insolvency, the bank opted for stringent discounting Available rules. By restricting discounting to prime paper (commercial, with short maturity, and The 2020. © bearing three signatures, of which one from a banker), the bank would force deposit­ in taking banks to remain liquid (and thereby shun the temptation of universal banking), Library 42De Cecco 1974. Hirsch 1977, pp. 241-57. Some historians have also invoiced the monetary strait- jacket in which the 1844 Banking Act had strapped the Bank of England, fixing a gold cover ratio on EUI note-issuing, inelastic in terms of emergency. However, the 1844 strictures were not exogenous, but precisely designed to curb, if not the temptation for a profit-maximizing note-issuing monopoly to print the too many notes, but at least the temptation for the government to exchange too many interest-bearing by bonds for (too many) freshly-printed notes—a deal in which the bank would surely find its interest (as the Bank of Spain did during the last decades of the 19th century). 43On the Crédit Mobilier, see Paulet 1995. ■^Plessis 1985, pp. 158, 279. Bouvier 1988,p. 80. produced 45Bouvier 1973, pp. 158-160. Plessis 1985, pp. 144-45. Napoleon, who founded the bank, is supposed to have said: "I have created the Bank in order to allow discount at 4 per cent." Cited in Goodhart 1988, p. 118. version Digitised Repository. 32 as only a very small part of their assets could elicit rediscounting at the central bank in times of crisis. Research Moderate Corporatism: Early Central Banking. The functional representation Institute of moderate corporatism was favorable to the early occurrence of central banking. Two sub-categories can be distinguished: in Belgium, Germany, Austria-Hungary, and

Italy, the central bank was created to pursue central banking; in the Netherlands, Den­ University mark, Sweden, and Norway, the central bank preceded central banking, with the result that central banking came a bit earlier in the first group than in the latter. European The first country to develop central banking was Belgium in 1850. Although the Institute. immediate reason for this was the need to rescue the Belgian financial market from the Cadmus, 1848 crash, the crash itself was directly tracable to the corporatist nature of the found­ on ing regime-the United Kingdom of the Netherlands. After the Napoleonic wars, Wil­ University

liam I of Orange was asked to preside over the destinies of a realm made of two dis­ Access tinct countries: the mercantile, capital-exporting, Dutch North and the industrial, European Open capital-importing, Belgian South. The Southerners proved less tractable than expected.

They boycotted the notes of the Bank of Amsterdam and generated low tax revenues. Author(s). Available William imagined several devices to integrate the two parts of the kingdom financially The 2020. and fiscally. He first founded the Société Générale, a note-issuing bank with a capital © in issued against Crown’s lands donated in exchange for an annuity. The bank was a mixed bank, investing in Belgian coal and iron, and presenting its paper for rediscount­ Library

ing at the Bank of Amsterdam when nearing illiquidity.46 After the passing of a low EUI

tariff, William established the Fund for National Industry in 1821, to compensate the by through subsidies and advances the prejudice to manufactures.47 In other words, Wil­ liam's policy can be viewed as a personal attempt, circumventing the estates, to balance the two pillars of the kingdom, the industrial South and the mercantile and agrarian produced

46Chlepner 1926. Van der Wee 1982, p. 607.

47Wright 1955. version Digitised 33 Repository. North.48 That attempt failed in 1830, when the South seceded. Suspecting the Société Générale of Dutch loyalty, the new Belgian government chartered a rival, the Banque Research de Belgique, also issuing notes and investing in industry. Excessive competition

between the two banks resulted in the 1848 crash. The National Bank of Belgium was Institute soon created to monopolize note-issuing and make rediscounting available, thereby solving the two banks' liquidity problems. It consistently followed a more liberal and University tolerant discounting policy than most other central banks in Europe.49 Although the stripping of the Société Générale and the Banque de Belgique of their note-issuing rights pulled these banks away from mixed banking toward investment banking (and European

thus specialization), this trend, however, was only temporary and soon reversed by the Institute.

development in the 1860s of a substitute for note-issuing in the form of individual Cadmus, on deposits.50 University The countries to adopt central banking next were Germany and Austria-Hungary Access in 1875 and 1877 respectively. As in England and France, the need to finance war­ European making in prior centuries led Prussia and the Austrian empire to create central banks. Open Yet, the fiscal-military model is of no use in understanding the modem banking system Author(s). of these two countries—it was side-tracked by considerations of domestic order. Con­ Available

sider Prussia first. Unlike William and Napoleon, Frederick the Great managed to cir­ The 2020. © cumvent the estates to float government bonds through the creation of a purely state in banking system. Then, the state bank was progressively privatized during its two suc­ Library cessive transformations, into the Prussian Bank in 1848, and the Reichsbank in 1875. EUI At work to produce this reverse trajectory was not the logic of war, but one of a com­ the

pletely domestic nature—the political consolidation of the German empire under con­ by servative rule. On the steps of the 1848 Revolution, the liberals in Prussia lost the

48Mokyr 1976. Terlinden 1922. 49Kauch, p. 59, 259 produced 50Chlepner 1926, p. 291. Van der Wee and Goossens 1991, p. 117. Cameron 1967, p. 146. version Digitised 34 Repository. ground conquered in 1848 to the landed elites.51 The junkers first undercut the liberals'

partnership with the proletariat, a partnership that was responsible for the 1848 Revolu­ Research tion, by adopting measures reminiscent of "Tory socialism," favorable to landworkers,

small farmers, workers, and artisans. Then, once that goal was accomplished, in 1858, Institute the new emperor, Prince William, launched into an economic policy that had the favors of the bourgeoisie, bypassing and obsolescing the bourgeoisie's liberal representatives University in the Reichstag.52 It is that strategy, brilliantly carried out by Bismarck, that anticipated the 1878 iron-and-rye coalition for high tariffs and remained the sociologi­ cal bedrock of the empire throughout its existence. This alliance was a corporatist European alliance, in that it was not mediated by political parties and parliamentary procedures, Institute. but resulted from a direct negotiation between the state, capital, and land. This is how Cadmus, on the regime managed to win the support of the bourgeois class without adopting the lib­ University eral constitutional format. Access The founding of the Reichsbank in 1875 was part of the corporatist deal. Against European some Prussian bureaucrats' nostalgia for Frederick's state banking, the Bank of Prussia Open was turned into a bankers' organization, closely supervised by the Reich Finance Min­ Author(s). istry. The Reichsbank was commited to take any type of paper at all times and in any Available

quantity, thus absolving other banks from remaining liquid.53 It enjoyed moral lead­ The 2020. © ership over the six largest Berlin banks, which all had a seat in the Reichsbankdirek- in torium. It is reported to have used moral suasion well enough to defend its gold Library reserve in the face of a depreciated exchange on several occasions from the late 1890s EUI until 1914.54 Closeness between banks and central bank transpired from all statements the

51Luebbert 1991, pp. 73-91. by 52For a detailed account of these measures, see Hamerow 1958. 53Bopp 1953, p. 6. Goodhart 1988, p. 107. Banet Whale 1968, p. 128. wThe practice was already reported by a French observer (Sayous 1899, fit. 1, p. 149) in an article pub­ lished in 1899. It happened again in the fall of 1907 and during the Moroccan crisis of 1911 (Barret Whale 1968, p. 132). The Frankfurter Zeitung wrote in reference to the 1907 occurrence: '...it must produced have been either mistaken patriotism or fear of antagonizing the Reichsbank whcih for so long a time kept our bankers from exporting gold, and which really created a depreciation, however short lived, of our monetary standard in the international money markets' (National Monetary Commission 1910, p. version 31). Digitised 35 Repository. made before the U.S. National Monetary Commission in 1910.55

Consider Austria next. Following the Napoleonic wars, the Emperor of Austria Research confided the straightening of the currency to the National Bank of Austria, in exchange for the exclusive privilege of discount (withdrawn in 1842) as well as the monopoly of Institute note issues. The uprising in Hungary in 1848, the 1854 Crimean War, and the 1859 war with the Italian states and France turned the bank into the official lender of the University absolutist state, with little to spare for merchants and manufacturers. Each new defeat, however, brought the Empire closer to territorial disintegration, reasserting the primacy European of domestic politics over the logic of war. In 1867, following the defeat at the hands of the Prussians, Hungary acquired its own political institutions, only the person of the Institute. monarch, defence, tariffs, and central banking remaining in common. The 1867 Com­ Cadmus, on

promise terminated absolutist rule, and recast the Emperor, instead, in the role of a University balancer between the Austrian bourgeoisie and the Magyar latifundists (much like Bis­ Access marck, and, as with Bismarck, most visibly in the tariff field). Since neither European Open government could borrow from the newly-created Austro-Hungarian Bank without the assent of the other's parliament, the common central bank moved away from Author(s). government loans towards commercial discounts. Being a government-run bank still, it Available easily assumed the burden of being a bankers' bank, helping stabilize mixed banking in The 2020. © the Austrian part of the Dual Monarchy.56 in

The fourth country to adopt central banking was Italy in 1894. Italy, like Library Germany, Austria-Hungary, and the ex-Kingdom of the Netherlands, held together EUI «A manager of the Deutsche Bank, then the largest Berlin bank, declared: "The great strength of our the fmancial system in Germany is the Reichsbank. Under that system the question of our own cash reserve if of secondary importance, as we can at all times convert our holdings of commecial paper into cash at by the Reichsbank." Cited in Goodhart 1988, p. 110. In turn, two senior Reichsbank officials, who were asked what would happen if the bank's cash reserve were to fall below the statutory minimum of one- third of its note issue, replied: "We should have to go on discounting bills. We would simply have to do

it. We could not stop it. If we did, it would bring about the greatest panic we ever experienced." Cited produced in Bopp 1953, pp. 27-28. 56Teichova 1994. Conant 1969, pp. 219-50. Goodhart 1988, pp. 138-44. Kover 1991. version Digitised Repository. 36 thanks to arrangements that elites forged outside the realm of parliament. Once unification was completed in 1870, political elites institutionalized the compromise. Research Wary that a two-party dynamic might endanger the territorial integrity of the new state

(the potential rift was between the Southern agrarians and the Northern industrialists), Institute right and left agreed to rig elections and alternate in power without competition, a

system known as trasformismo. As in Germany and Austria-Hungary, the upshot was University a tariff for industry and agriculture and a central bank for banks and concentrated industries. The Banca d'ltalia was established in the midst of the 1893 financial dis­ European aster, as a result of a merger of existing banks and the need to liquidate and absorb the Institute. bad loans of the failed Banca Romana.57 It rescued the Societa Bancaria Italiana in Cadmus, 1907, and, four years later, it even extended last resort lending to the steel industry, at on

that time on the brink of a bankruptcy that threatened that industry and their banks with University

immanent disaster.58 Access In Belgium, Germany, Austria-Hungary and Italy, the central bank was created to European Open pursue central banking. In contrast, the next four cases had a central bank since the early years of the century. Central banking required the conversion of the existing cen­ Author(s). tral bank into a bankers' bank. Although delayed a bit, this conversion was generally Available The

accomplished around the turn of the century, with the notable exception of Norway. 2020. © in Denmark is said to have been the next bank to adopt central banking, although the information we dispose on that country is of limited value. The Nationalbank was Library created in 1816; it had note-issuing monopoly and was the only bank until 1846. EUI

According to some, the bank withdrew from commercial banking and became a bank­ the ers' bank at some point in time between 1860 and 1907;59 still, according to others, the by state had to rescue ailing banks in the 1907 crisis, suggesting that central banking was

57Toniolo 1990, p. 94. produced 58Cohen 1972, p. 83. 59Johansen 1992, 165. Hansen 1991, 25. version Digitised 37 Repository. either insufficiently developped or impaired.60 The reasons for the change in the bank's policy and the circumstances in which it happened have not been studied. Nor Research do we have a good grasp on the dependent variable, other than the fact that Danish commercial banking lay somewhere between German and British banking.61 Institute Sweden was the last country in the category of moderate pluralism to adopt cen­ tral banking before World War I. The central bank of Sweden, the Riksbank, was the University oldest of its kind—it was founded in 1656, came to be owned and supervised by Parlia­ ment in 1688 and soon became the primary lender of the government, as the fiscal- military state logic would have it. In the 19th century, this logic was sidestepped and European

overtaken by the corporatist logic. The Riksbank became the bank of the agrarian Institute.

periphery when the Diet, which still administered it, fell into agrarian hands in 1864. Cadmus,

The Crown government, more favorable to commerce and industry, instead, became on University the champion for private (later, joint stock) banks, the so-called "Enskilda" banks. The Access outcome was a carefully balanced capital market. The Riksbank lost its monopoly over European note-issuing in 1830, which it exercized in competition with the Enskilda banks, Open championed by the government. It was the government, not the central bank, that Author(s). engaged in lending of last resort in times of crisis.62 Moreover, the joint stock banks’ Available

activities were early on rigorously regulated by the government to make them safe for The 2020. © shareholders and (agrarian) depositors. Sweden introduced bank inspection in 1877.63 in The resulting banking structure was not universal yet. In 1898, a truce was struck, according to which the Riksbank received note-issuing monopoly in return for a prom­ Library EUI ise to withdraw from direct banking business and confine itself to being the bankers' the

bank. Lending of last resort was institutionalized in 1904. That deal consolidated an by

“ Goodhart 1988, 129. 6lHansen 1991, 34. “ Goodhart 1988, p. 128. 65Larsson 1991, p. 82. produced version Digitised 38 Repository. embryonic trend among private banks toward universalism.64

In all the preceding cases, functional (class) representation correlated with central Research banking. Norway is the exception, and as such it confirms the rule that in the absence

of central banking, universal banking was impossible, irrespective of the degree of Institute fragmentation of the deposit market. Norway featured strong state banking and strong nonprofit banking, with commercial banks caught in the middle and unable to grow. University On the one hand, local resistance to branch-banking prevented the largest commercial banks from developing local networks.65 Each urban community had its own independ­ European ent private bank and its savings banks. The savings banks were accorded privileges that made possible their expansion; they functioned as commercial banks for local Institute. industries; they restricted their operations to the local environment. On the other Cadmus, on

hand, the central government initially used the central bank (with note-issuing monop­ University oly since 1816) to provide banking facilities to the periphery. Hence, by 1850, about Access 80 per cent of the central bank's outstanding claims were in the form of mortgage European Open loans, rendering the bank illiquid.66 The bank also engaged in direct long- and short­ term lending to private citizens and business. Although the liquidity of the bank's Author(s). assets began to improve by the end of the century, it was still unable to act as lender of Available last resort; the government had to directly intervene on several occasions to assist The 2020. © businessmen during crises.67 Intense competition between a note-issuing bank and pri­ in vate banks precluded the development of universal banking in Norway.68 Competition Library escalated into an open conflict in the 1890s, during which a number of provincial banks EUI established their own central bank, soon to become the largest bank in the country. A the

“ Gasslander 1962, p. 285. Nygren 1983. Sandberg 1978. Lundstrom 1991, p. 187. by 65Knutsen 1991, p. 5. “ Egge 1983, p. 273. 67Egge 1983, p. 275. 68By 1890, the respective shares of the Norwegian loan market for state, savings, and commercial banks produced were 30, 44 and 21 percent (Lange 1991, pp. 8, 10). This last figure overestimates the importance of modem commercial banking, as it also includes local independent private banks. version Digitised 39 Repository. regulatory battle ensued, lasting until after 1907. By 1914, Norwegian banking was still specialized, with Norwegian banks offering commercial services, while investment Research banking was supplied by foreigners.69

With the exception of Norway, the central bank that came out of the functional Institute variant of the corporatist model, therefore, is the opposite of what came out of the fiscal-military model. Rather than being a rent seeker defending its monopoly rent in University an otherwise competitive financial market, the central bank of the corporatist model displayed an encompassing, class-wide perspective—its goal was to ensure the full- employment of capital. The central bank was created, or reformed, to stabilize European

universal banking. Institute.

Excessive Corporatism: Late Central Banking. Wherever agrarian peripheries Cadmus, on had the power to, they blocked the adoption of a central bank (free banking was the University rule), and thus of central banking. In the United States, Australia, New Zealand, and Access Canada, agrarian resistance blocked it altogether. In Switzerland, adoption was European delayed for about 15 years. Open Powerful agrarian peripheries were found in the British ex-colonies of Author(s). development-the United States, Canada, Australia, and New Zealand. Each state, or Available

province had its own issuing bank(s) and own banking regulations, with which they The 2020. © were unwilling to part. In the United States, the debate focused on the switch from in free banking (though with a bond-based currency) to central banking. Wall Street sup­ Library ported a private central bank, the Democrats supported political control by the federal EUI government, and the local interests wished to preserve local control. Private bankers the

conceded political control to the Democrats and a plurality of reserve banks to the by States.70 The U.S. Federal Reserve System allowed private banks to reduce asset

69Knutsen 1991, p. 5. Lange 1991, p. 3. Nordvik 1993. Hodne 1975, p. 327. Egge 1983, p. 278. 70Broz 1995, ch. 5. produced version Digitised 40 Repository. liquidity, although to a small extent.71 Central banking was not attempted in Australia and New Zealand, despite the general illiquidity of a banking system that was too Research heavily involved in land, and crashed in 1889-1893. Free banking was most stable and least controversial in Canada, where banks shunned long-term investments in either Institute land and industry.72 In sum, Canada, Australia, the United States, and New Zealand had nothing resembling central banking until World War I. Universal banking did not University develop either, or crashed. Large firms gathered long-term capital in the equity market via private banks.

Switzerland is the exception. Although a corporatist state featuring a powerful, European

territorially organized agrarian periphery, Switzerland managed to charter a central Institute.

bank before World War I. Before then, Switzerland had a banking system combining Cadmus, free and universal banking. It was not viable, but subject to recurring crises and a on University permanently depressed exchange.73 Each canton had its own issuing bank and own Access banking regulations, with which they were unwilling to part. The debate focused on European the switch from free banking to central banking. As in the United States, large banks Open supported a private central bank, the left supported political control by the federal Author(s). government, and the local interests wished to maintain local control. The bankers won Available

after fifteen years (1891-1905) of trial and a couple of referenda.74 The founding of The 2020. © the Swiss National Bank in 1905 put universal banking on a solid base.75 in Library EUI The Unexplained Residual: The Spanish and Dutch Cases the The banking structure of Spain during the period preceding World War I is a by curious blend of the two banking trajectories. The joint stock banks of Spain were the

71Cleveland and Huertas 1985, pp. 59-71. ^Drummond 1991. produced 73Guex 1993, pp. 20-38. Conant 1927, pp. 302-12. Goodhart 1988, pp. 111-14. 74Zimmennan 1987.

75Guex 1993. version Digitised Repository. 41 slowest of all to move into the field of deposit banking. The banking scene in 1914

Spain was very similar to that in 1860 Continental Europe, when crédits mobiliers were Research launched in every country, Spain included. Yet, although everywhere else in Europe crédits mobiliers turned into either deposit or universal banks, in Spain they remained Institute what they were at the outset—investment banks. Why?

It would be a mistake to treat the Spanish case as a simple case of belated devel­ University opment of the deposit habit. There was a market for deposit by the turn of the century, which, albeit limited, was monopolized by the central bank—it held 75 per cent of all European bank deposits in 1900.76 Part of the reason, instead, accords with the fiscal-military Institute. model. The central bank was dependent on the government. Spanish monarchs created Cadmus, the Bank of Spain in 1782 to finance Charles Ill's war against England. Reorganized on

in 1829, it was granted sole right of issue in the whole national territory in 1874, at a University

time when the government was in dire straits.77 The Spanish government was too Access much in need of the Bank of Spain to finance its swelling debt (caused by political European Open instability and then the war with the United States) that it could not afford to strip it from its monopolistic privileges in the field of commercial banking, nor pressure it into Author(s). accommodating competition. The upshot was the crowding out of private bankers from Available The

the field of commercial banking altogether, and the consolidation of a specialization sui 2020. © in generis, with the Bank of Spain monopolizing commercial banking and joint stock banks purveying investment banking. This monopoly, however, would be questioned Library overtime, as the state would put its finance in order and the capital market would grow EUI

larger. Hence the Spanish exceptionalism; it neither was a real case of specialization, the since no joint stock bank engaged in deposit banking, nor a case of universalism, since by the central bank had no incentive to be a bankers' bank.

76Tortella 1972. Tortella 1994, p. 868. produced 77See Tortella 1994, pp. 868, 886. version Digitised 42 Repository.

The present analytical framework affords no grasp on the Dutch case. On the

one hand, Dutch joint stock banks scored high on the two proxies for universal banking Research (Table 1), a finding confirmed by qualitative accounts. Dutch joint stock banks, from

1910 until 1924, made a decisive move towards mixed banking.78 On the other hand, Institute the Dutch capital market looked like its British and French equivalents; it was well sup­ plied, featured a capital-export surplus, and was dominated from 1814 until 1914 by a University central bank which an historian described as "a private corporation competing on a par with the commercial banks."79 In a memorandum, the League of Nations explained the high equity-deposit ratio by an overdevelopment of the stock market, siphoning off the European savings of the public from the deposit market.80 The figures on the size of the non­ Institute. profit sector (table 2) are too ambiguous to elicit a conjecture: although high (52 per­ Cadmus, on cent of all deposits, 48 percent of total assets), more than half are represented by postal University savings. Private savings banks, furthermore, did not engage in commercial banking.81 Access This is a rather confusing picture overall. European Open Author(s). Test Available

I argued that universal banking was the joint product of two factors, deposit The 2020. © market fragmentation and central banking. These two factors, I further argued, were in observable in moderate corporatist countries only, that is, all the countries studied here Library but Britain, France, and the federalist democracies (Switzerland, the United States, EUI Canada, Australia, and New Zealand). The evidence so far presented provides con­ the

firmation of the hypothesis for most all but four countries-Spain, the Netherlands, by

Norway, and Switzerland. I now try to offer more systematic evidence.

78Jonker 1991, Vol. 6, pp. 1-5; Vantherasche 1991, pp. 107-8. 79Jonker 1991, Vol. 2, p. 5. produced 80Slcidtd des nations 1931, 215. 81Socidtd des nations 1931, p. 216. version Digitised 43 Repository. Data limitations barring a true test of the interactive effect of the two factors, I

looked for a shortcut. Moderate corporatism was unique for its fragmentation of the Research deposit market along profit-nonprofit lines. Excessive corporatism, indeed, was frag­

mented between center and local banks, whereas pluralism was not fragmented at all. Institute Since moderate corporatism was the only regime which, according to the reasoning, was expected to afford universal banking, then one should be able to observe a positive University correlation between the size of the nonprofit sector and the degree of universalism of the banking structure. Figure 3 provides a graphical representation of this correlation for the year 1913, using the share of deposits in the nonprofit sector (shown in Table 2) European as proxy for nonprofit banking market size, and the log of the equity-deposit ratio Institute.

(shown in Table 1) as proxy for the degree of universalism of the banking structure. Cadmus, on The expected correlation is not only visible, but tight as well. University [ Figure 3 here ] Access I now test the observed correlation in competition with Gerschenkron's late European and/or fast industrialization hypothesis. Gerschenkron's independent variable, capital Open scarcity, is alternatively proxied by relative backwardness (measured in terms of 1860 Author(s). GNP per capita) and speed of late industrialization (measured by the growth of GNP Available per capita in the 1890-1913 period). The 2020. ©

[ Table 3 here ] in The results clearly demonstrate the greater importance of market fragmentation Library over backwardness or speed of development (Table 3). However, the superiority of the EUI political structure explanation over Gerschenkron's explanation is obscured by the the

presence of a case of multicollinearity between the two contending independent by variables—relative backwardness and market fragmentation. Such a multicolinearity is a potential source of difficulty, since it might suggest, among other things, that market produced fragmentation was not a function of political structure, as argued here, but of economic version Digitised 44 Repository. backwardness.82 The relation between the two variables is plotted in Figure 3. Figure 4 reveals no readily interpretable pattern. Although a trained (or strained) eye migh Research see a curvilinear relation between the two variables, suggesting that past a certain

threshold of wealth, market fragmentation suddenly dropped. Absent a good reason for Institute such an effect, however, not much else can be said. The relation may in effect be an artifact of two outliers (Australia and Canada); it seems to vanish altogether among the University countries of the European continent. [ Figure 4 here ]

The second test bears on the relation between universalism and central banking. European

The theory developed here suggests that central banking was also a unique trait of mod­ Institute.

erate corporatist regimes. The difficulty in testing this relation lies in the qualitative Cadmus, on nature of the central banking variable. To this date, there is no summary statistics that University can plausibly substitute for the qualitative accounts supplied by historians, and which I Access summarized above. I opted instead for a rough proxy—the date of the founding of a European central bank. The rationale runs like this. Belgium excepted, universal banking Open appeared in conjunction with the development of deposit banking, to stabilize unstable Author(s). universal banks; wherever central banks did not exist yet, central banking required that Available

one be founded. In countries where the agrarian periphery was very powerful, central The 2020. © banks came late, being created well after the onset of deposit banking, with the twofold in result that central banking came late too and meanwhile universal banking was Library unsustainable. The argument suggests, therefore, the existence of a non-linear EUI (inverted-U) relation between the founding date of the central bank and the timing of the

central (and thus universal! banking: (1) banks founded before 1850 did not engage in by central banking; (2) banks founded between 1850 and 1900 were created to pursue cen­ tral banking; (3) central banks founded after 1900 were either too weak to engage in produced

82This possibility was also suggested to me by Douglas Forsyth. version Digitised Repository. 45 central banking or too late for central banking to have consolidated universal banking

by 1913. Research This proxy presents one obvious caveat, however. The relation should suffer exceptions, due to the fact that in many cases (the Netherlands, Sweden, Denmark, Institute Norway) the pursuit of central banking did not elicit the chartering of a new central bank, but a mere change in direction and personnel of the old, existing one. University The scatterplot does reveal the existence of an inverted-U function, loose at first, tighter later on (Figure 5). A simple quantitative test is provided in Table 4.83 Obser­ European vations are gathered into four clusters on the basis of the date of founding of the central bank: up to 1799, 1800-1849, 1850-1899, 1900 and after. For each cluster, I calcu­ Institute. lated the mean for the degree of universalism and the standard deviation. The theory Cadmus, on

leads us to expect two regularities: first, the mean should be higher in the second and University

third periods than in the first and fourth; second, the standard deviation should be large Access in the first period and progressively declining afterward, reflecting the above- European Open mentioned caveat-the fact that in some countries the central bank preceded central banking. Both expected regularities are verified. Author(s). [ Figure 5 here ] Available The

[ Table 4 here ] 2020. © in

Conclusion Library

The present paper has propounded and empirically tested the following proposi­ EUI the tions. Universal banking was the joint product of the fragmentation of the deposit by market and the systematization of last-resort lending in the form of central banking.

Absent market fragmentation, as such was the case in Britain and France, specialized produced banking obtained. Absent central banking, as such was the case in all federal democra­

83I thank Yossi Shavit for suggesting the format of the test. version Digitised 46 Repository. cies with the exception of immediate prewar Switzerland, specialized banking also

obtained. Market fragmentation alone was insufficient in producing universal banking. Research The implications of the findings are clear. The Gerschenkron whom the political

scientists like to quote-the one who derives political structures from relative backward­ Institute ness and policies of catching up—now stands on his head. Germany, Italy, Austria, Denmark and Sweden did not exhibit higher degrees of politcal centralization than University Britain because they suffered from a deficiency in capital during their industrial spurt. Instead, it is because these countries had less centralized political systems that their industries were subject to higher levels of capital scarcity. Political centralization was European a requisite for financial centralization. Where the former obtained, the deposit market Institute.

was unified, and large banks were free to take advantage of the depth of the market and Cadmus, on specialize into deposit banking. The absence of political centralization, in contrast, University meant the fragmentation of the deposit market, which, in the best case, that is, where a Access central bank would extend a liquidity guarantee, would lead banks to remain mixed, European and in the worst case, that is, where political decentralization was such as to rule out Open central banking, would force them to specialize. Author(s). More fundamental in determining banking structures than the timing of industri­ Available

alization was the political make-up of the nation-state. Banking structures reflected the The 2020. © organization of the capitalist class. In the presence of territorial unity, Smith's product in specialization theorem and Olson's collective action dilemma provided the logic behind Library the organization of that class respectively in the market (banks compete through product EUI differentiation) and the polity (lobbying for rents proceeds along product lines at the the

most). Absent territorial unity, product specialization and organizational individualism by were overriden by encompassing groupings, cleft along the center-periphery divide, and the related need for these groupings to bridge their differences through a com­ produced prehensive partition of markets. Whether this partition ran along class or territorial version Digitised Repository. 47 lines, in turn reflected the relative strength of the agrarian periphery, class representa­ tion being a weaker form of representation of agrarian interests than territorial repre­ Research sentation. Class representation split the banking world between its profit and nonprofit pillars, and made central banking possible. Territorial representation split banking Institute between center and local banks, and made central banking problematic.

In sum, universal banking was the fruit of a political equilibrium between University agrarians and capitalists. Capitalists extracted state liquidity guarantees for industrial investments as compensation for the injurious effects of pro-agrarian banking policies. European Disequilibrium, be it in favor of the capitalist center or the agrarian periphery, brought Institute. about banking specialization. Universal banking was an inverted U-function of the Cadmus, relative strength of the agrarian periphery. on

This is not the first time that the role of the state in the organization of the capital University

market is reemphasized, as witnessed by the growing literature on the fiscal-military Access state. There is a need, however, to update the fiscal-military state model to the circum­ European Open stances of the 19th century, a time when the most important question was not to finance war, but to maintain peace and order in the face of threats of class conflict and ter­ Author(s). Available ritorial secession. The 2020.

The paper made several secondary contributions. It offered a quantitative © in measure of banking structures. It tested Gerschenkron's hypothesis on a crossnational sample. And, contra current theories of asymmetric information, it offered a rationale Library for the instability of universal banking. EUI the by produced version Digitised © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository. Repository. Appendix: Sources for the Equity-Deposit Ratio Research The equity-deposit ratio is the ratio of own resources (capital, reserves) against individual deposits and savings. The numerator includes capital, reserves, and notes Institute whenever appropriate. The denominator includes deposits and savings accounts.

Unless otherwise noted, it excludes creditor current accounts, which exist for transac­ tion purposes and are usually unremunerated. Interbank deposits (which usually con­ University stitute a relatively insignificant proportion of total liabilities) are excluded whenever

possible. Data are for 1890 and 1913 unless otherwise mentioned. European Institute. United Kingdom: 104 in 1890, 43 in 1913, joint-stock banks of England and Cadmus,

Wales. The numerator is "Paid-up Capital and Reserves." The denominator is on University "Deposits and Other Accounts"; it was not possible to separate current accounts from deposits. As a result, the ratio overstates the liquidity of U.K. banks. [Sheppard 1971, Access European p. 118.] Open

United States: 1689 in 1896, 7,467 in 1913, National Banks. The numerator is Author(s). Available "Capital accounts"; the denominator is "Deposits" excluding "U.S. Government." It The 2020. was not possible to separate current accounts from deposits. As a result, the ratio over­ © in states the liquidity of U.S. banks, a bias that is further reinforced by the large number of banks included in the sample. [U.S. Bureau of the Census 1976, Series X 634-655. Library p. 1025.] EUI the by Canada: All Chartered Banks. The numerator is "Capital and rest fund.” The

denominator includes "Notes in circulation,” "Personal savings deposits," Public notice produced deposits," and "Public demand deposits." [Urquhart and Buckley 1965, Series H 226-

245, pp. 240-42.] version Digitised 2 Repository. Research Australia: 21 Australian Trading Banks. The numerator is "shareholders'

equity." The denominator includes "bills in circulation" and "deposits bearing inter­ Institute ests." [Butlin, Hall, and White 1971, pp. 114, 120, and 131.] University France: For 1913 only: 4 banques de dépôts (Crédit Lyonnais, Société Générale, Comptoir d'Escompte, Crédit industriel et Commercial). The numerator is "Dépôts." exclusive of "Comptes courants. " The denominator is "Capital versé et réserves. " European

[Archivai document communicated to us by Mr. Nougaret, Directeur des Archives His­ Institute.

toriques du Crédit Lyonnais, Paris.] Cadmus, on University Belgium: 3, among the 5, banks with the largest own resources in 1913 (Société Access Générale, Crédit Général Liégeois, Banque de Bruxelles; the other two largest banks European were not included because one, deviant Caisse Générale de Reports et de Dépôts, was a Open pure deposit bank, and, for the other, the Banque d'Outremer, I have no data). The Author(s). numerator includes "Capital" and "Réserves." The denominator includes Available

"Obligations." "Dépôts à terme:" current accounts are excluded. [Chlepner 1930, 96- The 2020. ©

99.] in Library Switzerland: For 1913: 8 grandes banques (la Société de banque suisse, le Crédit EUI suisse, la Banque populaire suisse, l'Union des banques suisses, la Banque commerciale the

de Bâle, la Banque fédérale (SA), le Comptoir d'escompte de Genève, la Société by anonyme Leu & Co.). The numerator includes "capital versé et réserves." The denominator includes "Obligations." "Dépôts d'épargne." and "Autres dépôts": creditor produced current accounts are excluded. [Département Fédéral de l'Economie Publique 1927),

pp. 326-27.] version Digitised 3 Repository.

For 1890: 6 Diskontobanken (Bank in Zürich, Bank in St. Gallen, Bank in Basel, Research Banque du Commerce, Banque de Genève, Banque commerciale neuchâteloise). The

numerator includes "Einbezahltes Kapital" and "Reserven. " The denominator includes Institute "Obligationen." "Anleihen." "Depositen.” exclusive of creditor current accounts. [Jôhr 1915, pp. 424-27.] University

Germany: 7 in 1890, 9 in 1913, Berliner Grofibanken. The numerator includes

"Kapital" and "Reserven." The denominator includes "Depositen." exclusive of credi­ European

tor current accounts. [Deutsche Bundesbank 1976, Table 1.01, pp. 56-59.] Institute. Cadmus, on Sweden: For 1913 only: all enskilda banks. The numerator includes "Fonder." University The denominator includes "Innestaende pâ sparkasserakning" and "Innestâende pa Access depositions- och kapitalrakning." [Sverige Statistika Centralbyran 1914, Tab. 97, p. European 115.] Open Author(s). Norway: 33 in 1890, 119 in 1914, commercial banks. The numerator includes Available

"Aksiekapital" and "Fond." The denominator includes "Innskott p|i lid” (deposits sub­ The 2020. © ject to notice); it does not include "Innskott p | anfordnng" (demand deposits), most in likely to be current accounts. [Norge Statistisk Centralbyra 1975, Tab. 252, pp. 492- Library 93.] EUI the

The Netherlands: 5 largest (algemenel banks (Amsterdamsche Bank, Incassobank, by

Nederlandsche Handelmaatschappij, Rotterdamsche Bank, and Twentsche Bank). The numerator includes "kapital en reserves." The denominator includes "deposito's" and produced "spaargelden" (current accounts excluded). [De Nederlandsche Bank n.v. 1987, Tab.

3c, p. 43.] version Digitised 4 Repository. Research Austria-Hungary: 4 largest Viennese Great Banks involved with the financing and founding of industrial firms (Osterreichische Creditanstalt, Allgemeine Institute Bodenkreditanstalt, Niederosterreichische Escompte-Gesellschaft, and Wiener Bankverein). The numerator includes share capital and reserves. The denominator University includes deposits (current accounts excluded). [Notel 1984, p. 154.] I used Rudolph's 10:57 ratio to break down individual deposits from current accounts. That breakdown was established for the six largest Viennese great banks in 1912. [Rudolph 1976, p. European

84.] Institute. Cadmus,

Italy: For 1913: 5 major commercial banks (Banca Commerciale Italiana, Credito on University Italiano, Banco di Roma, Società Bancaria Italiana, Credito Provinciale). The Access numerator includes "Capitale sociale" and "Fondi sii riserva." The denominator European includes "Depositi in Conto Corrente gd a Risparmio": it was not possible to exclude Open current accounts from deposits. As a result, the ratio overstates the liquidity of Italian Author(s). banks. [For the Credito Italiano, Confalonieri 1982, Voi. 1, p. 610; for the Banca Available

Commerciale, Confalonieri 1976, Voi. 3, p. 538; Banco di Roma, archival document; The 2020. ©

Credito Provinciale, archival document; for the Società Bancaria, ?.] in

For 1890: 2 major banks (Credito Mobiliare, Banca Generale). Numerator and denominator are the same as for 1913. The ratio overstates the liquidity of these two Library banks. [Confalonieri 1974, Voi. 1, p. 437-40.] EUI the by Spain: 3 Catalan (Banco de Barcelona, Sociedad Catalana General de Crédito,

Banco de Cataluna), 3 Basque (Banco de Bilbao, Banco del Comercio, Banco de Viz­ produced caya), and 1 Madrid (Banco de Castilla). The numerator includes "Capital desembol- version Digitised Repository. 5

sado" and "Reserva." The denominator includes "Derx5sitos” and "Cuentas de ahorro:" Research creditor current accounts are excluded. [Tortella 1974, pp. 234, 274, 286, 326, 394,

408, 418.] Institute University European Institute. Cadmus, on University Access European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository. Repository. References Research Bairoch, Paul, and Maurice Lévy-Leboyer, eds., Disparities in Economic Development Since the Indus­

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Press, 1955) The 2020. ©

Ziegler, Dieter, Central Bank. Peripheral Industry: The Bank of England in the Provinces 1826-1913 in

(London: Leicester University Publishers, 1990) Library Zimmerman, Rolf, Volksbank oder Aktienbank? Parlamentsdebatten. Referendum und zunehmende Ver- EUI bandsmacht beim Streit um die Nationalbankgrûndung 1891-1905 (Zürich: Chronos Verlag, the

1987) by

Zysman, John, Governments. Markets, and Growth: Financial Systems and the Politics of Industrial

Change (Cornell University Press 1983) produced version Digitised Repository.

Table 1: Two Proxies for Asset Liquidity Research

equity/deposit equity/liability

1913 circa 1890 1913 Institute

% University

UK 0.10 0.20 8.5 Canada 0.19 0.49 14.7 European USA 0.25 0.48* 15.5 Institute. Norway 0.25 0.19 15.5 Cadmus, Australia 0.35 16.3 on

France 0.43 15.0 University

Sweden 0.45 24.2 Access Switzerland 0.56 1.72 16.7 European Open Belgium 0.72 1.36 19.2 Germany 0.73 4.66 19.0 Author(s). Available Italy 0.88 1.47 22.0 The

29.3 2020.

The Netherlands 1.58 © in Austria** 2.00 22.7 Denmark 22.9 Library Spain 5.00 4.01 EUI the

* 1896 by ** Austria and the Czech Lands

Sources: Equity-deposit ratio: see Appendix. Equity-liability ratio: Société des produced nations 1931. version Digitised Repository. Table 2: Market Share of the non-profit sector* Research D e p o sits Total Assets

p r iv a t e government t o t a l Institute % % % %

Canada 5 4 9 2 University

UK 5 14 19 10

USA 27 0 27 19 European

Switzerland 30 0 30 43 Institute.

Fra n ce 23 11 34 44 Cadmus,

Australia 34 0 34 40 on University Sweden 35 2 37 26

New Zealand 42 0 42 13 Access

Belgium 25 22 47 23 European Open

Denmark 49 0 49 71

Norway 51 0 51 50 Author(s). Available

The Netherlands 22 30 52 48 The 2020. Germany 67 0 67 65 © in

I t a ly 41 32 73 49

Austria** 72 6 78 Library

S p ain 36 EUI the by * Savings banks, credit societies, and the postal savings system.

** Austria and the Czech Lands produced Sources: deposits: Mitchell 1975, 1982, 1983 and Société des nations 1931; assets: Goldsmith 1969. version Digitised Table 3: Banking structure regressed against deposit market fragmentation and timing of industrialization Repository.

Dependent Variable: log of the equity-deposit ratio (1913) Research constant -0.02 -0.68 -2.20 -2.11

(-0.05) (-0.84) (-2.99)* (-6.03)’ Institute

-0.001 0.0001

1960 GNP per cap University (-1.76) (0.13) European 1890-1913 growth of -0.04 Institute. GNP per capita (-0.08) Cadmus, on

% of deposits in 3.28 3.20 University

nonprofit sector (3.33)* (4.32) Access European Open Corrected R-squared 0.15 -0.09 0.56 0.59 Author(s). N observations 13 13 13 13 Available The 2020. © in * Significant at the . 10 level for a two-tailed test. T-values are bracketed below their corresponding coefficient. Library The observations are Britain, the USA, Canada, Australia, France, Belgium, Switzer­ EUI

land, Germany, Denmark, Norway, Sweden, Austria-Hungary, Italy. Spain is not the included. by

Sources: Dependent Variable: Appendix. 1960 GNP per capita: Bairoch and Lévy- produced Leboyer 1981, p. 10. 1890-1913 growth of GNP per capita: Bairoch 1993, p. 8.

Proportion of deposits held by the nonprofit banking sector: Société des Nations 1931; version Mitchell 1975, Series G2 and G3; Mitchell 1983, Series H2 and H3; Mitchell 1982,

Series H2 and H3. Digitised Repository.

Table 4: Banking structure as a function of the founding date of the central bank Research

Founding date Log of the equity-deposit ratio (1913) Institute of central bank n mean standard deviation University pre 1879 2 -1.55 1.06

1800-1849 3 -0.59 0.95

1850-1899 4 -0.10 0.48 European

post 1900 4 -1.17 0.47 Institute. Cadmus,

Sources: Log of the equity-deposit ratio: see Table 1. Founding date of central bank: on University Goodhart 1988. Access European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised Repository. Research

Figure 1: Two Ideal Types Institute specialized 0----X--X—XX—x—x-----x- — x—xxxx—x------1

system investment banks deposit banks University European

universal banks Institute. non-specialized 0--- x------xx—xxxxx----x------x------1 Cadmus,

system on University Access European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised Repository. Figure 2: Imaginary Balance Sheets

Bank A [p e r fe c t] Bank B [imperfect] Assets Liabilities Assets Liabilities Research

i l l i q u i d i l l i q u i d i l l i q u i d i l l i q u i d Institute liquidity de iterm in ed by business c y c le

liquid liquid University l i q u i d l i q u i d

Bank C [insolvent] Bank D [unprofitable] European A s s e ts Liabilities A s s e ts Liabilities

illiquid illiquid 1/5 1/5 i l l i q u i d i l l i q u i d Institute. Cadmus, 4/5 4/5 on

4/5 4/5 University Access 1/5 liquid liquid li q u i d li q u i d 1/5 European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised

Repository. Research Institute University European Cadmus, on Access Open Available 2020. in Library EUI the by produced version Digitised

Institute. Institute. University European Author(s). The ©

Figure 3: Banking structure as a function of market fragmentation, 1913 O □ 0) c w k> O O o N3 o o log of the equity-deposit ratio (1913) o bo b 7 T 9 k> D c o CO o O b

nonprofit sector’s share of deposits

Repository. Research Institute University European Cadmus, on Access Open Available 2020. in Library EUI the by produced version Digitised

Institute. Institute. University European Author(s). The ©

Figure 4: Nonprofit sector’s share of deposits as a function of economic backwardness o bo nonprofit sector's share of deposits in 1913

GNP per capita in 1860

Repository. Research Institute University European Cadmus, on Access Open Available 2020. in Library EUI the by produced version Digitised

Institute. Institute. University European Author(s). The © log of the equity-deposit ratio (1913)

Founding date of the central bank © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository. Repository. EUI WORKING Research PAPERS Institute University European Institute. Cadmus,

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