Proposal preview

Banking before banks: financial markets, intermediaries and networks in a global historical perspective

BANKING BEFORE BANKS: FINANCIAL MARKETS, INTERMEDIARIES AND NETWORKS IN A GLOBAL HISTORICAL PERSPECTIVE

Organizers & Chairs (also presenting papers):
Juliette Levy (University of California, Riverside)
Christiaan van Bochove (Radboud University)
Discussant: Gale Triner and Jean-Laurent Rosenthal

This session asks how non-bank financial intermediaries and social networks have contributed to the development of financial activity across history. The scholars in this session all study financial intermediaries and social networks that, that solved similar financial problems in the absence, or alongside, banks across time and place,. This exploration into the alternatives to formal banking practices is still very new and highly regionalized – this session will allow an important conversation across fields.

The work presented here will demonstrate how financial intermediaries helped solve problems that we now associate with the fundamental functions provided by banks, challenging in this way the historical literature on financial markets that has privileged banks as a prerequisite for economic development. This session will show how different local contexts, such as the type of government (absolute or representative), religion (e.g. Christian or Muslim), legal context (e.g. Common Law, Roman Law, Shari’a), and level of urbanization, ethnic homogeneity and wealth inequality underscore the logic of a variety of financial arrangements in history.

This session invites scholars from a wide spectrum of disciplines and regions to participate in exploring these issues. The session as it stands already brings together scholars on Europe, Latin America, Africa and the Middle East from institutions in the Americas and Europe to understand who became an intermediary and why; what different intermediaries had in common with each other; what overarching incentives and mechanisms drove their participation in markets; and how and why their services changed over time. Our intention is to bring to light cross and trans-regional patterns in historical financial development.

The following scholars have already committed to the session:

Christiaan van Bochove (Radboud University) and Ewout Hasken (Radboud University), Matching supply and demand on the Dutch mortgage market during the nineteenth and twentieth centuries

Elise Dermineur (Uppsala University / Umeå University)
Informal Credit Networks in Pre-Industrial France

Juliette Levy (University of California, Riverside) and Graciela Márquez Colín (Colegio de México)
Unexpected interest: credit unions in nineteenth century Mexico

Casey Lurtz (Johns Hopkins University)
Community Accountability: Municipal Courts and Micro-lending in 19th Century Mexico

Cyril Milhaud (Paris School of Economics)
Interregional flows of long-term mortgage credit in eighteenth-century Spain. To what extent was the market fragmented?

Sofia Murhem (Uppsala University) and Göran Ulväng (Uppsala University)
Church Endowments used for Credit in 18th and 19th century rural Sweden

Maanik Nath (London School of Economics)
A Legal Approach to Moneylending: Credit Contracts in Rural Madras 1930-1960

Kirsten Wandschneider (Occidental College)
Rural Credit in Nineteenth Century Prussia: Comparing Pfandbrief Prices

Christie Swanepoel (University of Western Cape) and Aaron Graham (University College London)
Imperial banks in South Africa in the nineteenth century: Did networks affect the success of these banks?

Organizer(s)

  • Juliette Levy University of California, Riverside juliette@ucr.edu USA
  • Christiaan van Bochove Radboud University c.vanbochove@let.ru.nl Netherlands

Session members

  • Juliette Levy, University of California, Riverside
  • Christiaan van Bochove, Radboud University
  • Ewout Hasken, Radboud University
  • Elise Dermineur, University of Umea
  • Casey Lurtz, Johns Hopkins University
  • Graciela Marquez Colin, Colegio de México
  • Kirsten Wandschneider, Occidental College
  • Sofia Murhem, Uppsala University
  • Gorang Ulvang, Uppsala University
  • Andrea Lluch, Universidad Nacional de la Pampa, Argentina
  • Maanik Nath, London School of Economics
  • Cyril Milhaud, Paris School of Economics
  • Christie Swanepoel, University of Western Cape
  • Aaron Graham, University College London

Discussant(s)

  • Jean-Laurent Rosenthal California Institute of Technology jlr@hss@caltech.edu
  • Gale Triner Rutgers University gtriner@gmail.com

Papers

Panel abstract

The literature has long privileged banks as prerequisites for economic development, but the importance of non-bank intermediaries and social networks is now increasingly appreciated too. Research on these alternatives to banks, however, is still fragmented geographically and temporally. This session therefore asks how non-bank intermediaries and networks across the globe provided the key financial functions that are now associated with banks. Who became intermediaries and why exactly them? Which networks supported financial markets? What did intermediaries and networks in different parts of the world have in common and how did they differ? How and why did they change over time? How did different local contexts (e.g. type of government, religion, legal system, urbanization, ethnic homogeneity, and wealth inequality) play a role in this? This session addresses these questions by comparing case studies from different parts of the globe to identify the regularities and patterns in historical financial development.

1st half

Matching supply and demand on the Dutch mortgage market during the nineteenth and twentieth centuries

Christiaan van Bochove and Ewout Hasken

Mortgage loans have formed an important part of European credit markets since medieval times. During the past 150 years, however, the way of raising mortgages has changed fundamentally. While private lenders still provided virtually all funding around the mid-nineteenth century (directly or assisted by brokers), financial institutions (initially mortgage banks, farmers’ banks, and insurers; later also retail banks) have replaced them since. These institutions had mixed success, though, and private lenders remained important well into the twentieth century. Both phenomena remain poorly understood and this paper addresses this by focusing on The Netherlands. It uses annual, provincial-level data on newly registered mortgages to reconstruct lenders’ changing relative importance. The paper shows that new financial institutions’ success depended on their costs for attracting funds and screening borrowers. The continued importance of private lending was supported, among others, by an intermediation platform not recognized in the literature before: newspaper advertisements.

Mortgage loans have formed an important part of European credit markets since medieval times. During the past 150 years, however, the way of raising mortgages has changed fundamentally. While private lenders still provided virtually all funding around the mid-nineteenth century (directly or assisted by brokers), financial institutions (initially mortgage banks, farmers’ banks, and insurers; later also retail banks) have replaced them since. These institutions had mixed success, though, and private lenders remained important well into the twentieth century. Both phenomena remain poorly understood and this paper addresses this by focusing on The Netherlands. It uses annual, provincial-level data on newly registered mortgages to reconstruct lenders’ changing relative importance. The paper shows that new financial institutions’ success depended on their costs for attracting funds and screening borrowers. The continued importance of private lending was supported, among others, by an intermediation platform not recognized in the literature before: newspaper advertisements.

Rural Credit in Nineteenth Century Prussia: Comparing Pfandbrief Prices

Kirsten Wandschneider

How do investors assess risk in emerging markets? What emphasis do they place on current events versus institutional structures and safeguards? Which institutional structures are seen as effective to insulate securities from risk? In the early 19th century, the Berlin bond market was just emerging. Investor choices of domestic securities were limited to Prussian sovereign debt, debt certificates of the Prussian Seehandlung, and the Pfandbrief bonds of the five ‘old’ Prussian Landschaften (East Prussia, West Prussia, Pomerania, Silesia and the Kur- and Neumark). Landschaften relied on institutional features, such as joint liability and dual recourse to safeguard creditors’ investments. Landschaft-bonds were tied to individual estates and thus directly affected by changes in land-tenure rights, economic, and political events that affected the estates. The current project compares weekly bond prices of these Landschaft-bonds with Prussian sovereign debt for the years 1809-1825. Using time-series analysis, it tests for the effect of military,...

How do investors assess risk in emerging markets? What emphasis do they place on current events versus institutional structures and safeguards? Which institutional structures are seen as effective to insulate securities from risk? In the early 19th century, the Berlin bond market was just emerging. Investor choices of domestic securities were limited to Prussian sovereign debt, debt certificates of the Prussian Seehandlung, and the Pfandbrief bonds of the five ‘old’ Prussian Landschaften (East Prussia, West Prussia, Pomerania, Silesia and the Kur- and Neumark). Landschaften relied on institutional features, such as joint liability and dual recourse to safeguard creditors’ investments. Landschaft-bonds were tied to individual estates and thus directly affected by changes in land-tenure rights, economic, and political events that affected the estates. The current project compares weekly bond prices of these Landschaft-bonds with Prussian sovereign debt for the years 1809-1825. Using time-series analysis, it tests for the effect of military, political, and economic news on bond prices, thereby highlighting how bonds with different collateral and different regional distribution reacted to news. The project also shows how the varying institutional features of the Landschaften affected price movements, and how investors evaluated different institutional and political events affecting the estates.

Interregional flows of long-term mortgage credit in eighteenth-century Spain. To what extent was the market fragmented?

Cyril Milhaud

Recently, new research has challenged the traditional narrative: Spain did not suffer from a ruler that threatened his subjects' property with excessive taxes and forced loans. Instead, Spanish economic development was held back by a decentralized and non-predatory governance, unable to solve the coordination problems in the way of more integrated markets. Through the analysis of the governance and loan portfolios of an ecclesiastical order, this paper examines to which extent mortgage credit markets were fragmented in early modern Spain. This order not only collected resources that it subsequently lent, but pooled them. Indeed, it developed into a nationally integrated organization able to offer everything from small loans to farmers to substantial amounts to the king and the Madrid elite.

Recently, new research has challenged the traditional narrative: Spain did not suffer from a ruler that threatened his subjects' property with excessive taxes and forced loans. Instead, Spanish economic development was held back by a decentralized and non-predatory governance, unable to solve the coordination problems in the way of more integrated markets. Through the analysis of the governance and loan portfolios of an ecclesiastical order, this paper examines to which extent mortgage credit markets were fragmented in early modern Spain. This order not only collected resources that it subsequently lent, but pooled them. Indeed, it developed into a nationally integrated organization able to offer everything from small loans to farmers to substantial amounts to the king and the Madrid elite.

Church Endowments used for Credit in 18th and 19th century rural Sweden

Sofia Murhem and Göran Ulväng

This paper aims at analysing a hitherto virtually unknown, but extensive, institutional creditor and financier in rural Europe 1750 to 1870: the church and its endowments. The traditional view in Sweden, as in Europe in general, is that the rural credit markets where dominated by private lenders until savings banks and mortgage societies emerged in the 1830s. Our point of departure is that the amount of institutional loans in pre-industrial rural Europe is underestimated, due to the source material used and due to lack of studies. We want to emphasise that the church and its endowments probably played a hitherto unknown role in the financial revolution as well as the agrarian revolution. This paper should be seen as a case study using ledgers from eight parish church funds in two different areas, one dominated by farming and extensive trade, and one in the mining districts and with an increased production...

This paper aims at analysing a hitherto virtually unknown, but extensive, institutional creditor and financier in rural Europe 1750 to 1870: the church and its endowments. The traditional view in Sweden, as in Europe in general, is that the rural credit markets where dominated by private lenders until savings banks and mortgage societies emerged in the 1830s. Our point of departure is that the amount of institutional loans in pre-industrial rural Europe is underestimated, due to the source material used and due to lack of studies. We want to emphasise that the church and its endowments probably played a hitherto unknown role in the financial revolution as well as the agrarian revolution. This paper should be seen as a case study using ledgers from eight parish church funds in two different areas, one dominated by farming and extensive trade, and one in the mining districts and with an increased production of iron during the 18th and 19th centuries. The purpose is to describe and analyse the borrowing from the church funds between 1750 and 1870, with a focus on the role of the church as an institutional lender compared with others, the extent of the lending, size of the loans, the lenders social background and in which stage in life they borrowed from the church funds.

A Legal Approach to Moneylending: Credit Contracts in Rural Madras 1930-1960

Maanik Nath

This paper studies the impact of debt relief legislation on the market for credit in rural Madras. The wave of credit defaults following the Depression prompted a series of state initiated measures aimed at protecting cultivator borrowers. In the short term, this generated a judicial dilemma of either adhering to the enforcement of legally binding contracts or guaranteeing the protection of agriculturists from debt exploitation. The enforcing of the latter disincentivised the use of legal instruments to underwrite moneylender transactions post 1939. This paper then explores alternative credit structures used in response to the high risk of lending. Informal contracts, in the form of crop security and sharecropping arrangements, were common features of credit transactions in the 1940s and 1950s. Broadly, this research exposes the inherent conflict between contract enforcement and borrower protection in the context of high risk informal credit markets.

This paper studies the impact of debt relief legislation on the market for credit in rural Madras. The wave of credit defaults following the Depression prompted a series of state initiated measures aimed at protecting cultivator borrowers. In the short term, this generated a judicial dilemma of either adhering to the enforcement of legally binding contracts or guaranteeing the protection of agriculturists from debt exploitation. The enforcing of the latter disincentivised the use of legal instruments to underwrite moneylender transactions post 1939. This paper then explores alternative credit structures used in response to the high risk of lending. Informal contracts, in the form of crop security and sharecropping arrangements, were common features of credit transactions in the 1940s and 1950s. Broadly, this research exposes the inherent conflict between contract enforcement and borrower protection in the context of high risk informal credit markets.

2nd half

Imperial banks in South Africa in the nineteenth century: Did networks affect the success of these banks?

Christie Swanepoel and Aaron Graham

South Africa has sound financial institutions, especially banks. Many of these institutions have their roots in the imperial banks established in the nineteenth century. Although imperial banks’ influence expanded and was solidified with the discovery of gold and diamonds, their establishment preceded these discoveries. The establishment of imperial banks in South Africa came during an agricultural boom, especially in wool during the 1830s. The paper proposes to study these networks among shareholders in South Africa and how these networks were used to establish these banks. It uses network analysis to study what the structure of the network was and how this either aided or hindered communication between the shareholders in London and local management.

South Africa has sound financial institutions, especially banks. Many of these institutions have their roots in the imperial banks established in the nineteenth century. Although imperial banks’ influence expanded and was solidified with the discovery of gold and diamonds, their establishment preceded these discoveries. The establishment of imperial banks in South Africa came during an agricultural boom, especially in wool during the 1830s. The paper proposes to study these networks among shareholders in South Africa and how these networks were used to establish these banks. It uses network analysis to study what the structure of the network was and how this either aided or hindered communication between the shareholders in London and local management.

Informal Credit Networks in Pre-Industrial France

Elise Dermineur

In pre-industrial Europe, networks were at the center of social, and above all, economic life. This is especially true for early financial markets. Before the nineteenth century and the proliferation of banks, most financial transactions took place through inner circles (i.e. informal networks). Less in known about the credit networks per se. This paper analyses the economic strategies and behaviour of men and women in early financial networks (1670-1790) through social network analysis with special reference to France. The aim is to understand how early financial networks formed and worked, and how people behaved in such networks; (1) How did early financial networks form? (2) What were the strategies and behaviour of men and women in early financial markets and networks? And (3) How did social networks affect economic behaviour? An analysis that uses both social network analysis and historical empirical analysis is applied to various probate inventories and notarial...

In pre-industrial Europe, networks were at the center of social, and above all, economic life. This is especially true for early financial markets. Before the nineteenth century and the proliferation of banks, most financial transactions took place through inner circles (i.e. informal networks). Less in known about the credit networks per se. This paper analyses the economic strategies and behaviour of men and women in early financial networks (1670-1790) through social network analysis with special reference to France. The aim is to understand how early financial networks formed and worked, and how people behaved in such networks; (1) How did early financial networks form? (2) What were the strategies and behaviour of men and women in early financial markets and networks? And (3) How did social networks affect economic behaviour? An analysis that uses both social network analysis and historical empirical analysis is applied to various probate inventories and notarial records.

Community Accountability: Municipal Courts and Micro-lending in 19th Century Mexico

Casey Lurtz

For villagers looking to lend a few pesos or advance payment for a load of bricks in nineteenthcentury Mexico, the elite financial tools of banks, notaries, and church lending remained beyond their reach. In truth, these institutions were also more complex than villagers’ needs demanded. Yet these smalltime lenders and borrowers still desired a means of ensuring their transactions. To fill the breach, particularly as demographic growth stretched the bonds of community accountability, people turned to municipal courts. There, in volumes labeled “libros de conocimiento,” or books of knowledge, municipal magistrates and their clerks noted down succinct exchanges of small amounts of capital. Drawing on the relatively recent civil code, these transactions demonstrate popular engagement with the language of economic liberalism and confidence in civil institutions generally seen to be weak. By examining these contracts, this paper illuminates how new commercial ideas spread through use at all levels of society.

For villagers looking to lend a few pesos or advance payment for a load of bricks in nineteenthcentury Mexico, the elite financial tools of banks, notaries, and church lending remained beyond their reach. In truth, these institutions were also more complex than villagers’ needs demanded. Yet these smalltime lenders and borrowers still desired a means of ensuring their transactions. To fill the breach, particularly as demographic growth stretched the bonds of community accountability, people turned to municipal courts. There, in volumes labeled “libros de conocimiento,” or books of knowledge, municipal magistrates and their clerks noted down succinct exchanges of small amounts of capital. Drawing on the relatively recent civil code, these transactions demonstrate popular engagement with the language of economic liberalism and confidence in civil institutions generally seen to be weak. By examining these contracts, this paper illuminates how new commercial ideas spread through use at all levels of society.

Unexpected interest: credit unions in nineteenth century Mexico

Juliette Levy and Graciela Márquez Colín

The current literature suggests that until the late nineteenth century, formal lending in Mexico was directed at trade and export credit, and structured finance existed to support large scale government infrastructural investments. It was not until the middle of the twentieth century that state-supported credit unions make consumer credit more common. Our paper suggests that this record is wrong, and that there were in fact wide spread attempts at developing consumer credit much earlier. We use a set of recently recovered documents from the records of the Ministry of Finance, which operated a credit union founded in 1895 for the employees of the Mexican Finance Ministry. Together with countless records from newspapers throughout the Mexican republic, starting in the middle of the 19th century, these records reveal the workings of an incipient middle class exploring ways to monetize their assets, and render credit activity more flexible and plentiful.

The current literature suggests that until the late nineteenth century, formal lending in Mexico was directed at trade and export credit, and structured finance existed to support large scale government infrastructural investments. It was not until the middle of the twentieth century that state-supported credit unions make consumer credit more common. Our paper suggests that this record is wrong, and that there were in fact wide spread attempts at developing consumer credit much earlier. We use a set of recently recovered documents from the records of the Ministry of Finance, which operated a credit union founded in 1895 for the employees of the Mexican Finance Ministry. Together with countless records from newspapers throughout the Mexican republic, starting in the middle of the 19th century, these records reveal the workings of an incipient middle class exploring ways to monetize their assets, and render credit activity more flexible and plentiful.