Chapter IX Private Banks and Savings Banks in France during the War

At the outbreak of the war virtually all the private banks took advantage of the moratorium on deposits. On January 1, 1915, 114 FRANCE 115 820 689 618 806 991 1,191 1,671 1,558 229 228 198 192 432 406 450 433 2,563 2,653 3,040 3,100 699 705 883 964 1,206 1,246 1,497 1,465 18 20 21 18 329 743 2,897 202 1,567 ASSETS Cash in vaults and in the banks . Portfolio . Portfolio and national defense bonds . Advances on collateral and reports . Current accounts . Total assets . LIABILITIES Deposits 974 Current acocunts 1,259 Acceptances 144 however, the Comptoir d'Escompte, the Societe Generale and the Credit Lyonnais ceased to avail themselves of the moratorium law. 1 It has not been easy to get any indication of the extent of the losses which French banks have incurred in view of the seizure of their branches in belligerent countries. Thus the Banque de Paris et des Pays-Bas in a recent report states that it has been unable to get any information from its main branch in Belgium.

Reference to the chart on stock prices on the Paris bourse in our chapter on the bourse will show the course of shares of five great private banks. They have declined very ·substantially dur ing the war period, in striking contrast to the shares of the Banque de France shown on the same chart, which have risen very substantially. It is probable that provincial banks have gained substantially in prestige as compared with the great pri vate banks during the war period. 2 Virtually all the French banks have been forced to close some of their branches through lack of personnel. The following tables show the main changes during the war period in assets and liabilities of the Credit Lyonnais, Comptoir d'Escompte and Societe Generale : CREDIT LYONNAIS 8 (In millions of francs) 1914 1915 1916 1917 1918 Jan. 3.1 Nov. 30 Dec. 31 Dec. 31 May 8 1 Wall Street] ournal News Bulletin, Wednesday, December 30, 1914.

2 London Economist, August 11, 1917, page 209. S All these tables are made from the balance sheets published by the institu tions in question.

116 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING COMPTOIR D'ESCOMPTE (In millions of francs) 334 1,349 154 155 2,240 360 1,338 154 158 2,265 278 916 139 125 1,755 406 598 172 131 1,491 386 355 224 179 1,347 137 966 235 148 1,826 1913 1914 1915 1916 1917 1918 ASSETS Jan. 31 Dec.31 Sept. 30 Dec. 31 Dec. 31 Mar. 31 Cash in vaults and in the banks . Portfolio . Portfolio and national defense bonds . Advances on securities . Current accounts . Total assets ............•• LIABILITIES Deposits and current accounts 1,307 1,04'1 1,123 1,330 1,868 1,831 Acceptances 182 32 36 56 48 41 SOCIETE GENERALE (In millions of francs) 1913 1914 1915 1916 1917 1918 ASSETS Dec. 31 Dec. 31 Dec. 31 Dec. 31 Feb. 28 Apr. 30 Cash in vaults and in the banks 173 102 120 84 87 260 Portfolio 890 277 263 Items for collection 81 22 20 Portfolio. items for collection and national defense bonds 406 435 793 Advances on collateral and reports 448 375 288 260 278 265 Current accounts 561 608 522 479 507 557 Total assets 2,612 1,822 1,675 1,676 ],759 2,336 LIABILITIES Deposits ...............••.

Current accounts . Acceptances . 673 1,118 176 457 624 102 417 573 45 452 655 13 477 720 10 613 1,137 25 It is interesting to note that for all of these institutions the ratio of cash on hand and in the banks to credits extended or to deposit and current account liabilities has risen very greatly. It is notable that aU of them have changed their form of statements so that" portfolio" is combined with" national defense bonds," making comparison with the prewar period impossible as to the extent of their commercial advances, even assuming that" port folio" has in the past represented exclusively commercial credits.

FRANCE 117 July 31, 1917 Fr. 34,000,000 40,000,000 27,000,000 73,000,000 23,000,000 250,000,000 10,000,000 13,000,000 28,000,000 59,000,000 24,000,000 28,000,000 31,000,000 38,000,000 75,000,000 79,000,000 117,000,000 169,000,000 40,000,000 55,000,000 61,000,000 78,000,000 36,000,000 44,000,000 54,000,000 71,000,000 52,000,000 92,000,000 244,000,000 386,000,000 502,000,000 827,000,000 Noteworthy too is the extreme drop in acceptances. It is very clear that no one of these institutions is performing anything like its prewar services for commerce. A similar story is told for most of the smaller institutions. An illustrative case would be the Banque Fran~aise pour Ie Commerce et l'Industrie, estab lished in 1901 with a capital of 60,000,000 francs: Assets: July 31, 1913 Cash in vaults and in banks Fr. 32,000,000 Portfolio . . .. . . . ... .. ... .. . .. . .•. 105,000,000 Reports and advances on securities.... 83,000,000 National defense bonds .

Current accounts 16,000,000 Total assets 327,000,000 Liabilities: Current accounts .. . 191,000,000 158,000,000 Acceptances and bills payable ~ . 55,000,000 12,000,000 A notable and pleasing exception to the general drift of the figures of the French private banks is presented by the Banque Nationale de Credit. This institution was established in 1913, taking over the Comptoir d'Escompte de Mulhouse. It had 144 branches and agencies in 1916,1 centering in Paris. It started out as a commercial bank. It did not issue loans before the war, though it has since aided extensively in floating the war loans. Of the banks of the second order this is now perhaps the first in size. Its good showing is probably due to the fact that it had not been involved in the disastrous loan flotations of the prewar period. It has done much better than the great credit houses in the matter of providing new credits. Its balance sheet shows the following changes during the war: Dec. 31, 1913Dec. 31, 1915Dec. 31, 1916Dec. 31, 1917 Francs Francs Francs FrancsAssets: Cash on hand and in Banque de France ...

Other banks and bankers . Portfolio . Current accounts . Advances on securities. National defense bonds Total assets 345,000,000 Liabilities: . Deposi ts and current accounts 142,000,000 214,000,000 322,000,000 581,000,000 Acceptances 67,000,000 24,000,000 29,000,000 22,000,000 118 EFFECTS OF TH,E WAR ON MONEY, CREDIT AND'BANKING In only one respect do these bank figures resemble those of the other private banks considered and that is in the decline of acceptances. Bank acceptances, so prominent in France before the war, have evidently become a matter of minor importance. It is interesting to note that this bank has kept separate in the figures its portfolio and the national defense bonds (as is the case with the Banque Franc;aise pour Ie Commerce et l'Industrie, the other smaller bank whose accounts we have examined). For the Banque Nationale de Credit, the national defense bonds are now the most important asset and their growth has been enormous since they first appeared in its balance sheet. But the portfolio also shows a great increase. It is probable that this bank has been a beneficiary of the popular distrust of the great credit houses.

The writer finds no reason to suppose that the major private banks in France are in danger of insolvency. Their general policy before the ,var of selling securities to the people has been disastrous for France and the depression and panic preceding the war made it impossible for them to escape sub stantial losses to themselves despite their efforts" to stand from under." But on the whole they have probably shifted most of the losses. The people rather than the great private banks have borne the main burden of the appalling decline in the second rate and third rate foreign securities purchased through these banks. How great these losses have been we will consider in our chapter on the French bourse. At the present time it seems prob able that all the private banks in France are in a very sound position and the main criticism which we shall pass upon their war time policy relates not to its safety but to its selfishness.

T'hey have not done their duty, by and large, to the commerce and industry of France. But this we have seen in an earlier chapter. The French savings banks presented an alarming problem at the outbreak of the war-as indeed, in less degree, has been true of savings banks in England and the United States. The great difficulty grew out of the tendency of depositors to withdraw their deposits to meet the war emergencies and rising commodity FRANCE 119 prices at the same time that the securitie,s held by these institu tions were declining hea~ily in price on the bourse. Whatever the causes involved, the clear tendency in France, the United States and Great Britain has been for commodity prices to rise and for securities of a fixed yield to decline. The figures for deposits and withdrawals of the French savings banks are sub stantially represented in the figures of the operations of the Caisse des Depots et Consignations with the caisses d'epargne ordinaires. The former is a great state institution which re ceives trust funds from the courts, the deposits of the friendly societies and the deposits of the ordinary savings banks, with some other minor items. The latter, the ordinary savings banks, are institutions scattered all over the country which receive sav ings deposits from individuals and turn them over to the great central institution for investment. They are legally bound to do this. When their depositors call on them for funds they call on the central institutions. The total liabilities of the Caisse des D'epots et Consignations on December 31, ~913, were 5,620,000, 000 francs, of which over four billions were due to the savings banks.1 T'hese funds before the war had been chiefly invested in the 3 per cent rente, at an average price above 85. During the war the price of the 3 per cent rente has declined from 84 or 85 to about 60, which, with the decline of other investments, no doubt has left the Caisse des Depots et Consignations technically insolvent. However, technical insolvency is not a serious matter for this institution, assuming that the state itself remains solvent, since there is a tacit understanding that the state will protect the institution. In the great loan of 1915, for example, the state took indirect steps to protect savings deposits by accepting them for subscriptions to the loan. At the outbreak of the war excess of withdrawals over deposits was large. Thus for the period January 1 to July 20, 1914, deposits exceeded withdrawals by about 21,000,000 francs. For the period July 20 to December 20, 1914, withdrawals exceeded deposits by 134,000,000 francs despite heavy restrictions under the moratorium on withdrawals. 2 1 See balance sheet in Quarterly Journal of Economics, November, 1915, page 75.

S See weekly figures in Economiste Fran,ais.

120 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING In' June, 1915, it was still necessary to limit withdrawals to fifty francs per book per fortnight, and withdrawals still sub stantially exceeded deposits. In May, 1917, deposits and with drawals were substantially equal, deposits being 16,563,000 francs and withdrawals, 16,697,000 francs. The week of October 11 to October 20, 1917, showed deposits of 7,215,000 francs and withdrawals of only 1,796,000 francs. The excess of deposits over withdrawals from January 1 to October 10, 191'1, was 150,422,000, showing that the tide had turned definitely and that the savings banks were safe. It is not necessary that these institutions should be able to liquidate their assets in order to remain in a sound position. The emergency past, the most significant part of their operations lies in the field of income accounts rather than of capital accounts. With the state behind them they are safe.

Criticism of their policy of investing chiefly in the rente may be made. 1 Lysis says that the savings banks have been used by the state to prot~ct the rente against attacks on the part of the great banks. This may be true. It is probably true in any case that the extensive purchases of the rente by the Caisse des Depots et Consignations has given the rente an artificial price in the prewar period and has made the earnings of the savings deposits consequently less than they would have been. The state is thus under great moral obligations to this institution. In 1916 a new law raised the maximum deposits at the savings banks from 1,500 to 3,000 francs and the maximum deposits in friendly societies from 15,000 to 25,000 francs. 2 The position of the Credit Foncier would in many respects be like the position of the savings banks since its main assets are mortgages on real estate-fixed investments which tend to depreciate as interest rates rise. The position would tend to be stronger to the extent that it had a large margin in the value of the real estate. On the other hand, its position would tend to be weaker in that a large amount of its loans were made in the territory occupied by the Germans. A large amount of its in1 Gp. cit., page 208.

2 London Economist, August 12, 1916, page 287.

FRANCE 121 come from the mortgages in occupied territory has been of course shut off. 1 On the whole, however, the Credit Foncier has seemed to weather the storm. Its profits in 1916 were 12,594,000 francs and its dividend 25 francs. In 1917 its profits were 15,805,000 francs and its dividend 30 francs. 2 Early in 1917 the Credit Foncier issued a new block of securities nominally amounting to 600,000,000 francs; actually issued at 285 per 300 franc bond. The interest was 5% per cent and the term seventy years. The issue was made more attractive by the prospect of valuable prizes: six in number, one of 500,000 francs and five of 250,000 francs, to be awarded one at a time at six periodical drawings. There was great popular interest in this issue.3 Early in 1917 some new credit institutions for small traders and manufacturers were established, mutual guarantee societies similar to the agricultural syndicates in certain respects.4 There has been increasing recognition in France during the war of the ~.

need for credit for manufacturers and agriculturists, and we have already seen that the state itself has made extensive ad vances to various necessary enterprises. 5 1 London Economist} January 2, 1915, page 17. 2 Journal des Economistes, May 15, 1918, pages 223-224. 8 London Economist, March 10, 1917, page 472. , Ibid., March 24, 1917, page 554. 1\ In connection with the great loan of 1916, Albert Thomas stated that part of the loan was going into real capital, plants which would be useful after the war. Ibid.} October 28, 1916, page 822.