Joint Stock Banking in Germany

A Study of the German Creditbanks Before and After the War

P Barrett Whale

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351839617
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

This classic study of German creditbanks was first published in 1930 and even now deserves its place as a fundamental text on banking in Germany. It is a valuable comparative study of one important type of financial institution and represents a detailed survey of Joint Stock Banking in Germany in the pre-war, war and post-war periods upt o 1928.

PART I

THE CREDITBANKS BEFORE THE WAR

CHAPTER I

THE DEVELOPMENT OF THE CREDITBANKS

THE German creditbanks may be said to have originated in the fifties of the last century. Actually the oldest of them, the A. Schaaffhausen’scher Bankverein of Cologne, was chartered in 1848; but for the first few years its activities were limited, partly by the general political and economic difficulties of the time, and partly by special difficulties inherited from the private banking firm from which it derived its name. If one year is to be selected as a starting point, perhaps it should be 1853, which saw the foundation of the Bank für Handel und Industrie at Darmstadt (hence called the Darmstädter Bank). This bank and its Programme at once excited public interest as a ‘new model’ in German banking. Following this model more or less closely, a number of other banks were formed in 1856. Of these the most important were the Berliner Handelsgesellschaft and the Discontogesellschaft of Berlin,¹ the Mitteldeutsche Creditbank of Meiningen, the Allgemeine Deutsche Creditanstalt of Leipzig, the Vereinsbank and Norddeutsche Bank of Hamburg, and the Schlesische Bankverein of Breslau.

It will be observed that the establishment of these banks (with the exception of the A. Schaaffhausen’scher Bankverein) followed very closely upon that of the French Crédit Mobilier.¹ As in France, so in Germany, the primary aim of the new financial organs was to promote industrial development; and in Germany their creation was a phase of that first stirring of enterprise which culminated in the boom and crisis of 1857. To understand the precise tasks which they set before themselves, it is necessary to refer to the conditions till then prevailing in the German capital market.

Little capital was put into German industry during the first half of the nineteenth century, and many undertakings languished for lack of it. This has led to the acceptance of the view that there was at this time a general shortage of capital in Germany—a cause as well as an effect of general economic backwardness. This view, however, more particularly with respect to Prussia, has been disputed by Brockhage ² and confronted with an array of facts which, if they do not prove that capital was really abundant, at least remove the impression that its scarcity was the factor immediately limiting economic progress. It is impossible to attempt here even a summary of the material which he brings to light; the most interesting points are: that there were active markets for government securities, which commanded high prices and gave their purchasers low yields; that the obligations of foreign governments figured here to a considerable extent; and that this indication of an export of capital from Germany is confirmed by a study of trade statistics. With these and other facts, Brockhage supports the conclusion:

‘The condition of Prussian economic life in the twenty-five years after the second treaty of Paris was such that there was continuously more capital available than was put to productive economic use.’¹

Later he extends this conclusion to the years 1840–50. If, therefore, industry was handicapped by want of capital, it was largely because investment was misdirected. Those who had the necessary funds were for the most part neither willing nor fitted to become progressive entrepreneurs themselves, nor would they trust their money with others who had the required qualities.

If now we accept this explanation as correct, it is readily to be seen that there was a place for some kind of agency which should obtain the confidence of the investing class, and use this confidence to direct their capital towards sound industrial undertakings. On the evidence the existing organs did not meet the need. The small private bankers—the most numerous class—were engaged principally in money changing, supplemented, especially in towns like Frankfurt a. M., by dealings in public securities. No doubt, too, they made advances to their clients out of their own funds, but not on a large scale nor for long periods. The great bankers, of the Rothschild type, were occupied with the financial needs of the more important governments and stood aloof from struggling business concerns. The bankers of intermediate standing, less cosmopolitan than the great firms and inspiring more confidence than the small, might have answered the purpose better and probably were of some help; but on the whole they were too conservative and fearful of risking their reputations. Of banks, the only class to be considered is that of the Notenbanken; and they were not at this time very numerous, nor—with the exception of the Preussische Bank, established only in 1846—influential. Such as they were, they were too busy maintaining the volume of their note circulation to concern themselves with the utilization of other people’s capital, while their own resources were only suitable for liquid investment.¹

It was primarily to fill this place that the new credit banks were formed, and accordingly they gave a prominent place in their programme to the promotion of joint stock companies. The original statutes of the Bank für Handel und Industrie, for example, empowered the bank (Article III K.)

‘to bring about or participate in the promotion of new companies, the amalgamation or consolidation of different companies, and the transformation of industrial undertakings into joint stock form; also to issue or take over for its own account the shares and debentures of such newly created companies.’²

Quotations to the same effect might be made from the statutes (or articles) of the other creditbanks founded at this time, the only exception being the case of the A. Schaaffhausen’scher Bankverein. This exception—attributable to the rather earlier date at which this bank was established—did not correspond with an exception in actual practice.

The promotion of companies meant, of course, equipping them with capital, but those in charge of the new banks were fully alive to the dangers of extensive participation on their own account in the concerns which they brought into existence. To quote again from the original statutes of the Darmstädter Bank, the enumeration of the kinds of transaction in which the bank might engage opens thus:

‘The Bank is authorized to carry on all banking transactions. According to its judgment, it will devote its activity and its resources to transactions, such that it can withdraw its money after agreed notice or whenever else this seems desirable or necessary.’¹

Similarly, the Discontogesellschaft in Article 40 of its (1856) statutes declared:

‘The resources of the company shall be so employed, as practically to obviate all danger of its being unable to meet its obligations punctually, even in the conditions of any likely commercial crisis. In particular therefore has the management to guard against locking up for a considerable time sums too large in proportion to the means and business of the company by purchasing or lending on securities.’²

How this caution might be reconciled, at least in theory, with the rôle the banks wished to play in the development of industry is well shown by the following quotation from the annual report of the Schaaffhausen’scher Bankverein for 1852:

‘The management has proceeded from the principle that it is the function of a great banking institution not so much to call great new branches of industry into existence through large scale participation on its own account, as to induce the capitalists of the country by the authority of its recommendations, based on thorough investigations, to apply their idle capital to undertakings which, properly planned, corresponding to real needs, and equipped with expert management, offer prospects of reasonable profits.’³

Company promotion was the part of the programme of the creditbanks which at the beginning was most prominent, the part, further, in which their ambitions most clearly exceeded those of the older institutions; but it must not be thought that it was more than a part. On the contrary, they intended to combine with their newer and more distinctive tasks the cultivation of all the recognized branches of a banker’s business, upon an enlarged scale and with a special view to the encouragement of industry. This may be illustrated by an extract from the first annual report of the Darmstädter Bank. Speaking of the objects of the bank, after mentioning in the first place what was to be done in the way of equipping promising industrial concerns with capital, it proceeds:

‘Its (the bank’s) organs at home and abroad shall facilitate the export trade and the thousand other relations between German industry and the money market. It has the right and duty to transfer the capital which one industrialist has temporarily to spare to another who is at the same time in need of it, and by this continual interchange to stimulate and increase industrial activity.… As in the case of large scale industrial undertakings, so also is it entitled to participate in the projects, creations and financial transactions of governments, and to assist investment in this field. The Bank für Handel und Industrie, in a word, is a banking house raised to a higher power, furnished with vast funds and with various organs assured of an existence as long as that of the company itself.’¹

There was, however, one self-imposed limitation of their business which it is interesting to notice. Although ready to accept deposits from their customers, they did not think it advisable to endeavour to attract them for the purpose of augmenting their working funds. To quote from the report of the A. Schaaffhausen’scher Bankverein for 1856:

‘We do not consider it desirable in the interests of the complete security of our institution to attrac...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Introduction
• Part I: The Creditbanks Before the War
• Part II: The Creditbanks Since 1914
• Appendices
• Index