Transcript The origins of the Dutch financial crisis of the early 1920s

The origins of the Dutch
financial crisis of the
early 1920s
A presentation for EH590
14 March 2007
Presentation overview
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What am I looking at?
Why is this interesting?
What are my key research questions?
How am I going to do this?
What is my evidence?
My research thus far
My short term research plans
My medium term objectives
Chris Colvin
The origins of the Dutch financial crisis of the early 1920s
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What am I looking at?
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A financial crisis in the Netherlands involving
over 35 banks over the period 1920-1925
Dutch historical context:
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Chris Colvin
Late industrialisation
Banking expansion and merger wave
Neutral during Great War
Post-war boom and bust
1920s international comparison
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Why is this interesting?
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Involved the only banking crisis in the
Netherlands since 1600
Marked the end to the Dutch experiment with
universal banking
Changing role of the Nederlandsche Bank
Question mark over severity of the Dutch postwar depression
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What are my key research
questions?
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What caused the crisis?
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What is the impact of the expansion and
consolidation of the Dutch banking sector?
What are the consequences of the new relationships
between banks and industry?
What is the nature of the Dutch post-war
depression?
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Where does this fit within
existing literature?
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Modern literature on crisis dominated by: Johan
de Vries and Joost Jonker
Three problems with existing literature that I
hope to address:
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Chris Colvin
They are “historical” rather than “economic” in nature
They focus on large banks, ignoring smaller ones
They fail to relate the crisis to the macroeconomic
situation
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How am I going to do this?
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Construct a new narrative (including an
“empirical narrative”)
Address post-war “statistical deficit”
Use tools of industrial organisation and
asymmetric information literatures
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What evidence am I going to
use?
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Qualitative:
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Bank archives including: ABN AMRO, Rabobank,
ING Bank / Postbank, Nederlandsche Bank
Newspapers: financial, general, local and national
Personal archives deposited at Dutch municipal /
national archives (e.g. for Colijn, family Müller)
Quantitative:
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Share prices and dividends
Interest rate spreads
Bank-client linkages
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My research thus far
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Examined the experiences of one bank in the
crisis (the Rotterdamsche Bankvereeniging)
using new archival sources (see my new
working paper published yesterday!)
Developing a new “empirical narrative” of the
crisis using Event Study Analysis
Preparing a critical review of the secondary
literature for an introductory chapter
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My short term research
plans
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The literature review will have five themes:
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Chris Colvin
The evolution of banking and financial systems
The relationship between financial systems and
economic (industrial) development
The economic consequences of neutrality
The causes and consequences of business
cycles/depressions
The causes of financial (including banking) crises
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My medium term objectives
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Investigating range of clients of different banks,
and the services provided to them
Examining “internal” and “external”
management structures, and relationship
between
Ex post analysis of merger between two large
banks in 1911
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Questions?
Grand opening of
the new branch of
the RBV in The
Hague, 1923
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Appendix A:
Planned thesis structure
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Thesis structure: three parts, each addressing a
separate (but related) research strand:
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Chris Colvin
What is the impact of the expansion and
consolidation of the Dutch banking sector?
What are the consequences of the new relationships
between banks and industry?
What is the nature of the Dutch post-war
depression?
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Annex B:
Event Study Analysis (1)
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Determining the impact of an event by estimating
abnormal returns.
This is the actual ex post return of the security over the
event window minus the normal return over the event
window, where the normal return is the return that
would be expected if the event did not take place.
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Annex B:
Event Study Analysis (2)
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Was central bank intervention the cause of the
crisis at the Rotterdamsche Bankvereeniging?
The event in question is the Nederlandsche Bank
communiqué of 1 July 1924:
The various rumours concerning the financial position of the
Rotterdamsche Bankvereeniging have motivated the directors of this
institution to turn to the president of the Nederlandsche Bank, whom they
are providing with all materials regarding the liquidity of the
Rotterdamsche Bankvereeniging.
Following an examination of the provided materials, the president of the
Nederlandsche Bank has proclaimed that he is prepared to work with the
directors of the Rotterdamsche Bankvereeniging, and if necessary to
maintain her liquidity.
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Annex B:
Event Study Analysis (3)
110.00
105.00
100.00
95.00
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60.00
RBV stock
price in 1924:
definitely not a
random walk.
RBV
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Annex C:
Universal banking failure? (1)
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Universal banking (Gerschenkron)=
deposit/savings banking + investment banking
Which is more crisis prone?
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Universal banks able to reduce info asymmetries
and internalise risk
But they are arguably more fragile during economic
downturn and may create a “dual market for lemons”
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Annex C:
Universal banking failure? (1)
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The Dutch case in the 1920s:
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Experimentation with universal banking
But important differences between banks
Comparison of two banks in the crisis:
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Rotterdamsche Bankvereeninging (universal and failed)
Amsterdamsche Bank (functionally separated and
survived)
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Annex C:
Equity-Deposit Ratio
Universal banking failure? (1)
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1916
1917
1918
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1920
Big5
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1921
AB
1922
1923
RBV
1924
I-B
1926
1925
TB
1927
NHMa
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1929
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Equitydeposit
ratio for
Big Five,
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