|ORIGIN AND HISTORY OF THE BANK.
The creation of the National Bank of Belgium was one of the consequences of the separation of Belgium from Holland in 1830, and of the unsatisfactory condition of banking which followed the separation. It was onlyafter experiments for twenty years with existing institutions, which did not operate satisfactorily as banks of ssue nor as agents of the treasury, that the National Bank was created in 1850. The charter adopted followed simple lines for keeping the Bank free from entanglements by restricting its field of operations to the discounting of commercial paper based upon actual transactions.'1
So directly and effectively was it aimed at these
results that it became the model of at least two foreign countries
in the reconstruction of their banking systems. When the Government
of Holland remodeled
In the reform of the currency system of Japan, also in 1882,
Count Matsukata, the eminent Minister of Finance, set forth in his
report on the subject: c " In point of the perfectness of
organization and the well regulated condition of business
management, the National Bank of Belgium stands highest. This fact
is due doubtless to the lateness of its founding, which enabled it
There were, at the time of the creation of the National Bank in
1850 four banking institutions in Belgium—the Societe Generate, the
Bank of Belgium, the Bank of Flanders, and the Bank of Liege.a The
Societe Generate with a capital of 50,000,000 florins (about
$20,000,000), dated from early in the nineteenth century, and under
the Dutch sovereignty performed most of the financial operations of
the Government. The control of the institution was chiefly in the
hands of the Dutch element, who felt little sympathy with the new
political regime in Belgium. The newT Government was compelled,
however, to employ the Bank in the same manner as its predecessor.
The Societe Generate, feeling itself indispensable, refused to
permit the supervision of the court of accounts over its management
as treasurer for the State.
On December 4, 1838, the sum of 1,000,000 francs ($193,000) was thus presented. On December 10 another sum of 1,200,000 francs was presented, and on December 15 300,000 francs. The Bank of Belgium was forced to suspend and to seek the assistance of the Government.
y a law of January 1, 1839, a credit of 2,600,000 francs ($501,800) was granted to the Bank for the redemption of its notes and for other purposes, and 1,400,000 francs ($270,200) for the repayment of the savings deposits, which were under its charge.
This temporary relief did not remove the fundamental causes of weakness. Both the Bank of Belgium and the Societe Generate had locked up considerable amounts of capital in industrial ventures from which it could not be readily converted into cash.
The crises which affected Belgium in 1837 and in 1838 were much more serious in their effects because the two banks had to meet at once the demand for the redemption of their notes and the needs of the industrial enterprises which they were supporting. From these two sides—the demands of the public and of their industrial clients—the Bank of Belgium was exposed to the disappearance of its metallic reserve and the suspension of payments in specie.
Notwithstanding the aid of the Government in 1839, the same
embarrassments recurred in 1842. The Bank of Belgium confessed its
inability to fulfill its financial mission for the Government and
resigned its functions
On its part also it had supported numerous industrial enterprises and had suffered severely in the financial crises through which the country had passed. It was even compelled in 1842 to suppress the branches which it maintained in the provinces, of which the larger number had shown bad results, and to continue only the branch at Antwerp. But the Societe Generale was more firmly established than its rival and was the only institution which was in position to resume the service of the treasury without danger to the public finances.
A new convention restored to the Societe Generale the functions
of cashier of the State. The arrangement was, on the part of the
Government, only a makeshift. The time had come when those
responsible for the conduct of public affairs were considering
seriously the creation of an institution which should be restricted
in the scope of its operations to commercial banking and should not
be exposed, like the existing institutions, to the results of
unsound financiering. When, therefore, the SociŁtŁ Generate in
1843 demanded the extension of its charter, which was asked by the
shareholders for a period of twenty-five years, the Government
declared tha t it would reserve to itself the right to indicate
before the end of the year 1849 the conditions under which the Bank
might continue to exist and the modifications which it would be
The crisis of 1848 obliged both the Societe Generate and the Bank
of Belgium again to suspend payments. This furnished the Government
an opportune occasion for putting its plans in execution. The
existing institutions were protected for the moment by making their
notes legal tender, while restricting their issues; but the year
1849 had hardly begun before the president of the council of
ministers, M. Frere-Orban, formulated a series of reforms which he
submitted to the Societe Generate as the basis of the establishment
of a national bank. The conditions were such as almost to compel a
refusal. They constituted a demand upon an institution long in
operation, generally prosperous and honorably known, and engaged
from the beginning in affairs requiring time for their development,
tha t it should suddenly restrict its operations at
The Government anticipated the refusal of the Bank to adopt this policy, and was fully prepared in tha t case to propose the creation of a new institution based upon the principle of issuing notes only upon commercial paper. From these conditions sprang the National Bank, which was established by a law of May 5, 1850. The new institution was given a duration of twenty-five years, which might be extended by law upon the demand of a majority of the shareholders. The capital was fixed at 25,000,000 francs ($4,825,000), divided into 25,000 shares of 1,000 francs each.
The significance of the difference between the character of the new institution as representative of the State and those which it superseded in this capacity is indicated by the provisions of the charter in regard to the forms of business in which it might engage. These privileges, as laid down by the law and by the statutes of the bank, were to discount or buy bills of exchange and other obligations relating to commercial operations; to buy Treasury bonds within the limits to be prescribed; to conduct the purchase and sale of gold and silver; to grant advances upon those metals; to assume the collection of paper which might be remitted to it by individuals or firms; to receive money on current account; and to receive on deposit securities, precious metals, and gold and silver money, and, finally, to make advances in current account or for short terms on deposits of national securities or other securities guaranteed by the State, within limits and conditions to be fixed periodically by the administration of the Bank with the approval of the Minister of Finance.
The beginnings of the Bank were not brilliant. Commercial
transactions in Belgium were limited in scope
It was contended, moreover, by the authors of the law that the benefits which the Bank offered to commerce should be extended into all parts of the country, in order that no merchant or manufacturer should be excluded from its advantages. The Bank was prudently managed, however, and weathered the serious crises which shook Europe from 1855 to 1858 and from 1863 to 1866, without embarrassment to its credit.
As the result of the demand for discounts Belgian commercial paper in the Bank, which stood on July 10, 1870, at 177,500,000 francs, rose by July 20 to 203,923,100 francs; on July 31 to 223,231,744 francs; and maintained itself until August 20 in the neighborhood of 204,000,000 francs ($39,372,000).
While other financial institutions and merchants thus sought
discounts from the Bank much larger in volume
During the eighty-two days from July i to September 20, 1870, notes presented for redemption reached the sum of 85,022,000 francs, or over 1,000,000 francs ($193,000) per day. The pressure was felt most severely during the latter half of July, when the daily average attained about 2,094,000 francs ($404,142), and redemptions on the single day of July 20 were 6,286,000 francs, and on July 21 7,025,000 francs.
The intensity of the panic was much increased by the shortsighted measures taken by the government in casting distrust upon the soundness of the Bank, instead of giving it moral support. From the early days of July, the Royal Government, fearing that the declaration of war between France and Germany would lead to the violation of the neutrality of Belgium, warned the National Bank to take measures to transfer to Antwerp that portion of the metallic reserve representing the balance of the treasury.
On July 13, 1870, without further previous notice, the Bank was
informed that this operation must be effected without delay. The
Bank had declared that the operation could be accomplished within
The order was revoked for the moment, only to be renewed on the 15th by an oral demand from a subordinate of the Ministry of Finance, with the condition that the transfer should be made under the superintendence of two agents of the department.
The transfer of the metallic reserve of the treasury outside of
Brussels deprived the Bank of valuable resources at a moment when
anxiety was spreading throughout the country. Inevitably, the effort
to keep the measure secret was unsuccessful and provoked violent
excitement, which led to many demands by the
The Ministry of Finance added to the difficulties of the situation by directing its agents in the provinces to keep very small reserves in cash and not to modify their character—that is, not to exchange coin for bank notes.
The Minister of War at the same time addressed to all the heads of army corps a circular warning them that he had taken measures in concert with the Minister of Finance that all agencies of the Bank, especially the most important, should be provided with gold, silver, and notes in sufficient quantities to provide for the exchange of bank notes which might be found in the military chests.
These measures threw such discredit upon the notes of the National Bank and so seriously impaired confidence in the circulation, at a moment when the difficulty of obtaining precious metals was becoming constantly greater on the foreign exchanges, that it soon became imperative to make a change of policy.
The Minister of War on July 31—five days after his first circular—addressed a new order to the heads of army corps, informing them that he had been requested by his associate in the finance department "to recommend particularly to governing boards and to other paymasters of the army to demand as little gold as possible of the agencies of the National Bank and to pay in bank notes everything susceptible of being thus paid, as well as to exchange notes of 500 francs and 1,000 francs which might be on hand for denominations of 20 and 50 francs in order to facilitate payments."
It was too late to counteract fully the effects of the earlier
measures. The Bank was compelled to raise the
The Bank was struggling bravely in the meantime to meet
legitimate demands. The cash reserve stood on
The discount rate was promptly advanced in order to check
unnecessary demands for accommodation. The
At the outbreak of the crisis the Bank possessed foreign paper to an amount of 64,144,561.25 francs ($12,370,000). Such prompt disposition was made of these securities to obtain coin that on July 31 the amount of such paper was reduced to 7,227,333.20 francs and on August 20 to 3,531,907.38 francs. The proceeds of this paper was employed in the purchase of gold and silver, principally silver bullion, which the mint converted into 5-franc pieces, with which the bank filled the void in its reserves caused by the redemption of notes.
Thanks to these energetic measures, which imposed a loss of 705,340.42 francs ($136,100), the Bank weathered the storm and was able by August 27, 1870, to reduce discount rates to 5 ^ per cent for accepted bills and 6 per cent for those not accepted, following this by reductions on September 20 to 4.% and 5 per cent, and on October 8 to 2>% and 4 per cent. Calm was reestablished by the middle of August and the Bank returned to normal conditions.
The special commission which had been appointed by the Government
to study the best means of
So successfully had the Bank met the stress of the war between
France and Prussia that there was little
There were indeed protests from one or two deputies against
bringing in the project of renewal on February 27, 1872, nearly
three years before the expiration of the old charter, and there was
a proposal to reserve to the chambers the right of revision at
either of the two sessions prior to January i, 1883, which failed
only by a vote of 38 in the affirmative to 53 in the negative, and 1
not voting.® The final vote in the chambers, however, taken on May
10, 1872, showed 87 votes in favor of the project of renewal, with
only 6 in the
The debate in the Senate was short. The bill passed at the sitting of May 17 by the unanimous vote of the 37 members voting, with 1 abstaining because he was one of the censors of the Bank. The feeling indicated by the majority in the debates was in accord with a passage from the report made in the name of the central section of the Chamber of Deputies by M. Eudore Pirmez:6 " It might be asked if a profound examination of the principles on which the National Bank rests is still necessary. The discussion seems uncalled for. The National Bank is not attacked in any of its fundamental principles. Your sections, in devoting themselves to the examination of the subject, have brought none of these principles into question. They have limited themselves to considerations of detail. Beyond this, complete unanimity seems to reign. There is general accord with the position of the Government, that there can be no question of destroying in order to reconstruct, but only of preserving and improving.
Parties, however lively their differences, have had the
wisdom, to-day as in 1850, to silence their divisions in a matter
which does not concern them, and we shall see without doubt an
institution, created upon the proposition of one of the chiefs of
The extension of the charter became law on May 20, 1872. The
capital of the bank was increased from
It was at this time also that the requirement was first imposed that the profits arising from a discount rate above 5 per cent should go into the public treasury. The life of the Bank was extended until January 1, 1903, and it was not for more than a quarter of a century that the question of the relations of the Bank to the State and the public again came under general discussion.
So firmly was the credit of the Bank established after the trial
of the war between France and Germany that
The redemption and reinstatement in our vaults of more than 115,000,000 francs of these bills, effected within a space of five months, will permit the appreciation of the importance of these movements. One of the oldest and most powerful financial institutions of Berlin (the Maritime Commerce Company) was charged by the German Treasury with the negotiation of our bills.
This institution made overtures to the National Bank with a view of effecting the exchange under the most advantageous conditions. We did not hesitate to extend a cooperation entirely disinterested, having no other concern than to guard the commerce and industry of the country from the inconvenience of sharp variations in the bank reserve, which would inevitably have produced considerable exportations of the precious metals.
It was especially by means of the purchase of foreign paper, of which the influence can be found in the assets of the Bank, that the repayment of so considerable a sum was effected, without shock and without prejudice to the country."
The increase in the discounts of the Bank during the two years 1872 and 1873 showed the influence of these operations.
Total discounts, which had been only 1,522,000,000 francs in
1871, advanced to 1,853,200,000 francs
The amount of this foreign paper discounted fell off in 1874 to 38,000,000 francs, only to increase materially a few years later, when the policy of carrying foreign bills in the reserve was permanently adopted.
In anticipation of the expiration of the charter in 1903, a measure was prepared by M. P. de Smet de Naeyer, Minister of Finance, which was the basis of the law finally enacted; but a vigorous and prolonged opposition developed from the benches of the Socialist party, which was represented in the chambers by some of the most eminent and learned professors of political economy in Belgium.
The project of the Government, making moderate changes in the charter, was presented to the chambers on December 22, 1898. It will be seen in the sequel that while the government's project became law without modification and did not change the essential character of the Bank, yet the influence of the critical attitude assumed toward corporate property was shown in the government project itself in the heavy burdens imposed upon the Bank and the large share in its profits attributed to the State.
Upon several important questions a considerable vote was cast for the amendment of the government measure. A proposal by M. Theodor, in the Chamber of Deputies, that the Government should have the right to terminate the charter on January 1, 1914, if a preliminary notice were given of two years, received 25 votes, with 73 votes in the negative.0
The bill passed at the sitting of March 23, 1900, by a vote of 55
in the affirmative, 2 in the negative, and 5 abstaining from
voting—4 upon the ground of participation in the ownership or
management of the Bank and 1 upon the ground that the bill did not
embody two provisions which he considered of vital importance.b
The limit of untaxed notes was left unchanged at 275,000,000
francs, in spite of the increase in the circulation, from about
200,000,000 francs in 1870 to 600,000,000 francs in 1900.
The governor is appointed by the King for five years, and may be reappointed.
The six directors, who constitute with the governor the active administrative council, are chosen in general meeting of the shareholders, and serve for six years.
The Government exercises its supervision through a special commissioner, whose compensation is fixed by the Government by agreement with the Bank, but which is paid by the Bank.
There is also a council of censors, consisting of seven members, elected by the shareholders, and performing the functions of auditors and supervisors.
Thus, while a firm guiding hand is kept by the Government upon the National Bank, it is governed in its commercial operations by officers chosen from the business community and in accordance with the demands of commercial conditions.
The subject was discussed at considerable length in 1899 whether
this form of organization, similar in general character to that of
the Banks of France and Germany, should not be superseded by that
On the very day following the presentation in the chambers of the government measure for the renewal of the charter, Prof. Hector Denis, one of the leading professors of political economy in Belgium and a pronounced advocate of state socialism, submitted a proposal that there should be a general inquiry into the operations of the Bank and other banking institutions in Belgium. He proposed that the inquiry should be made by the Superior Council of Industry and Commerce and should deal with the following subjects :
a "On the actual conditions and degree of development which has been attained in Belgium by credit, and especially commercial credit in all its forms.
"On the part in this which has been taken by the National Bank.
"On the independent institutions which are interested therein and their relations with the National Bank.
"On the reforms which experience and science will permit to be introduced into Belgium, in the interest of the general body of merchants and producers of the country and in the interest of the State, in the organization and development of credit and of circulation, and in the operations of a bank of issue.
"On the extension of perfected modes of collection, payment, transfer, and clearing, which will save or render unnecessary in the future the employment of metallic money.
" On the means of preventing or ameliorating monetary crises.
This inquiry was vigorously opposed by the representatives of the
Government in the chamber as involving
The memorandum submitted by M. Denis quoted Professor Nasse, of the University of Bonn, as declaring that "for a long time the issue of bank notes was a private banking operation in the same manner as the creation of bills of exchange, and that it was only little by little that the bank note assumed the character of money which it now possessed.
At the present time, since the public character of the issue of
bank notes is recognized, one is guilty of an
Against this demand for a state-owned bank, which was supported
by arguments going to show the profits made by the National Bank,
the central section of the Chamber of Deputies made a report through
M. Delbeke on June 29, 1899, which took up most of these points. It
opposed the inquiry demanded by M. Denis upon the ground tha t
no complaint had been made against the organization of the Bank or
its operation, neither on the part of commerce, of industry, of
finance, of borrowers, by organized
On the contrary, the Union of Credit and the popular banks have
inscribed in their reports the expression of
It would be discussed in the campaign and would form the
object of pledges taken by candidates elected and even of imperative
restrictions. Is it necessary to add that these questions would be
One would thus find created and steadily growing an electoral scourge till now unknown. " An example is furnished even this year in Germany by the debates on the renewal of the monopoly of the Bank of the Empire which gives visible form, even to the least clear-sighted, to this great danger.
The suppression of the private capital has been demanded there
with ardor by the agrarians and not by the socialists, who, contrary
to the policy of the socialists of Belgium, have energetically
demanded its continuance. The agrarians wish to render
It is important to place the central organism of credit aloof
from such assaults, under which it would not fail to succumb,
dragging down with it public prosperity. 1 'It is a common error to
believe that the State alone
'The Bank of France saved us,' said M. Thiers, ' because it was not a bank of state/ During the war of 1870, says a leading unsigned article in the ' Journal des Debats' of July 2, 1895, the securities of the State had fallen from 72 per cent to 50 per cent, while the note of the Bank of France, bearing the signature of a private establishment, had lost almost none of its value.
"Is it necessary to point out, among so many other dangers, the
danger in the liberty given to governments to
The facts show it to be such. In vain is it answered, that even private banks, like those of Spain and Portugal, have not had the virtue to resist the solicitations of the treasury in extremity. The real point is whether the credit of these nations would not have fallen even lower with banks of state.
In vain is it said that private interest in its turn will drive the banks into complacency toward the State. In private banks of issue this private interest finds in itself an insurmountable limit to its complacencies."
Turning to the point that all the profits now going to private
owners could be converted into reductions of the
The state bank, moreover, however ably managed, would not be able to act with the promptness of a private bank in great emergencies.
Referring to the suspension of a banking house at Brussels a few years before, it was recounted how several millions had been obtained within an hour from the National Bank. " If I had had to deal with a bank of state," said the narrator, " I would not have dared to make the application, because it would have involved sums belonging to the treasury.
Moreover, I would not have been able to do it without the intervention of the legislature; and before the chambers had acted the catastrophe would have taken place."
In view of these considerations and others which were
invoked, the central section declared that the system
The liabilities of the bank, in case of liquidation with impaired
assets, were to be met by the State. The council of administration
was to be named by the King, the college of censors by the chambers,
half to be chosen from lists submitted by the Superior Council of
Commerce and Industry. This proposal was
It is possible to imagine a bank of Providence, distributing capital to every applicant without adequate guaranties; but such an organism is the negation of the conditions upon which the problem of credit rests and ought to be solved. It would involve within a brief interval filling the assets with impaired securities, the ruin of the bank, and the demoralization of credit itself.
" Others see in a bank of state a means of procuring discount at the lowest possible price for all, at ' the price of return,' as has been said—indicating by that the cost of administration and a premium against risks.
But this is a misunderstanding of the factors by which the
market for money is governed, independent of the institution which
grants discount, whether that be a bank of state or a private bank.
The first is no more capable of reducing the rate of discount than
the second. One does not find, indeed, that banks of state acquit
themselves of this function better than others—witness the Imperial
Bank of Russia, which in the month of December last recorded a
rate of 7 per cent—unless one wishes to fix rates artificially
low, surrendering the resources of the bank to the assaults of bad
paper within and pillage from without!
In the Senate the debate on the articles of the new law was brief and no amendment was offered to change the fundamental character of the Bank.