Free Banking in Belgium, 1835-1850

Patrick Mardini () and Kurt Schuler ()
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Patrick Mardini: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise
Kurt Schuler: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

No 19, Studies in Applied Economics from The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

Abstract: Belgium had a somewhat free banking system from 1835 to 1850. The country had two major banks in Brussels, the Société Générale and the Banque de Belgique; several smaller banks in the provinces; and many private bankers. The system had restrictions on note issue and legal barriers to entry. Belgium suffered from a bank run in 1838 triggered by the threat of war with the Netherlands. The Banque de Belgique had invested its resources in illiquid assets and did not know how or when to reduce its note issue. It was bailed out by the government but knew that another failure would spell its end. This led the bank to reform its activity, deleverage, and hedge the remaining risk. The Société Générale was not seriously threatened in 1838 and continued as before. In 1848, the French revolution of that year and France’s suspension of convertibility induced another crisis. This time it was the turn of the Société Générale to falter, for the same reasons as the Bank de Belgique in 1838. The government intervened through fiat money, suspension of convertibility and permission to monetize liabilities. The free banking system ended with the creation of a central bank on January 2, 1851.

Keywords: Free banking; Belgium (search for similar items in EconPapers)
JEL-codes: E59 N13 N23 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2014-09
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