Although the traditional structures of credit were more or less sufficient for the usual demands of the state and the needs of trade, in times of economic crisis money became scarce and expensive. So in 1848, when a severe economic crisis was aggravated by the effects of a political revolution, some bankers went bankrupt and others stopped granting credit.
It was necessary for the state and the cities to intervene in order to create discount banks, in particular the Comptoir National d'Escompte de Paris. Entrepreneurs, who ordinarily relied on self-financing, sometimes complained of a lack of credit for exceptional needs. Meanwhile, simple bankers, whatever their wealth may have been, had limited means which did not allow them to suddenly meet a whole new range of demands for capital. Such a situation occurred, for example, with the construction of the great railway lines in the 1850s, and again in
stimulating the modernization of industry which was exposed to English
competition as a result of the free-trade treaty of 1860. In such cases,
the necessity was felt for other credit establishments.
As early as 1827, the banker Jacques Laffitte had attempted to launch a limited partnership of commerce and industry; then some Saint Simonians, among whom were the Pereire brothers, conceived the daring project of a new 'System of banks' which was to enable the economy to benefit greatly from the miracles of credit. The realization of these ideas was limited from the very beginning, under the July monarchy, to 'caisses', such as the Caisse Générale du Commerce et de l'Industrie, founded by Laffitte in 1837. These institutions, only found in Paris, which granted loans to ironworks and to the railways, were joint stock banks which still had limited means and which tied up their capital dangerously. They, too, were swept away by the economic and political crisis of 1847/8.
It was only under the Second Empire that the role of the new banks, which were set up on extensive bases of joint stock companies, asserted itself. The year 1852 saw the birth of the Crédit Foncier (mortgage bank), which would finance the transformation of the large cities, particularly of Paris, and then set about granting loans to Egypt before confining itself to credit for municipalities as well as granting mortgage loans to private individuals. But it was not the agricultural credit institution which was hoped for by some.
The same year, 1852, the Pereire brothers, strengthened both by the backing of Napoleon III - who had himself been influenced by Saint Simonianism - and by the assistance of the haute banque, created the Crédit Mobilier - which under their direction quickly became a powerful and dynamic bank. Following the example of the Société Générale de Belgique, this institution made itself, both in France and abroad, into a promoter of large firms of all kinds, which made up a veritable financial group including mining developments; big credit institutions such as the Imperial Ottoman Bank or the Austrian Mortgage Bank; railway companies and French as well as foreign insurance companies; the Compagnie Générale Transatlantique; building contractors and companies in charge of facilities for large cities. The Crédit Mobilier did not receive government authorization, however to increase its bond issues as it had hoped, and it tied up too much of its capital in loans to the Compagnie Immobilière (real-estate company), a subsidiary that had unwise involvements in Paris and Marseilles. In 1866/7, the Crédit Mobilier was shaken by a severe crisis, the Pereires were forced to resign at the request of the Banque de France, which was very hostile towards them, and the great company went into decline.
From that time on, the leading banks were the Crédit Lyonnais and the Société Générale, founded in 1863/4. Following the Crédit Industriel et Commercial (founded in 1859), they began a major innovation which would allow them to tap national savings. They took to hunting down deposits by imitating the leading English banks: they were made up of a whole network of branches and utilized the services of door-to-door salesmen. They resorted to advertising in order to emphasize the high interest and numerous services they offered to their depositors, such as - in addition to other services - handling securities and providing cheque books, both of which had become legal in 1865. These efforts enabled them to overcome the reticence of savers and acquire a rather large clientele. On the eve of the First World War, the Crédit Lyonnais was the leading French bank, with more than 600 000 account holders.
At the beginning, these credit institutions boldly used the capital, which they centralized in the form of deposits generally on current account, in risky speculations and in long-term loans to finance genuine industrial investments. They acted as veritable 'all-purpose banks'. The original title of the Société Générale was 'Société Générale for furthering the development of commerce and industry in France'.
This industrial policy proved to be dangerous, however, and the banks were imperilled by massive withdrawals at the time of the war of 1870 and by serious crises that broke out during the 'Great Depression' from 1873 to 1896, particularly in 1882 and 1889. Naturally cautious, and aware of these risks, the founding president of the Crédit Lyonnais, Henri Germain, made the decision in 1870, which was reaffirmed in 1882, to limit the bank to short-term loans: the only use for current account deposits, in his protective view. His example was followed by the Crédit Industriel et Commercial (C.I.C., which had the distinctive characteristic of having no branches in the provinces, but only largely autonomous subsidiaries) and later by the Société Générale. The deposit banks thereby came to specialize in discounting operations as well as advances on securities and loans on securities on the stock carried over. At the same time, they differed from the large investment banks: although they were also set up as limited companies, the latter, which had no branches in the provinces and drew their resources primarily from large, fixed-term deposits or from issuing bonds, acquired interests in other firms and granted them long-term loans. The principal investment banks were the Banque de Paris et des Pays-Bas (1872), the Banque de l'Indochine (1875), and the Banque de l'Union Parisienne (B.U.P), set up at the beginning of the twentieth century by several families of the protestant haute banque.
On the eve of the First World War, France thus had relatively diversified banking structures. The investment banks and the haute banque concerned themselves particularly with forward operations, large financial transactions. Bills of exchange, which had multiplied and held a more important position than in other countries, constituted the main support for short-term credit. This 'discountable material' was also sought after by local bankers (who also took part in limited partnerships), by the large deposit banks and by the Banque de France, which practised not only rediscounting but direct discounting as well. The economy therefore had abundant and relatively inexpensive commercial credit at its disposal.
Nonetheless criticism was raised. The large deposit banks, whose clientele included many foreign securities, such as the 'Russian loans', became the objects of a violent campaign, which culminated in the period from 1906 to 1910. The 'financial oligarchy' was accused of diverting national savings abroad at the expense of development at home. These banks' neglect of agriculture was deplored and finally led the state to favour the formation of agricultural savings banks at the end of the nineteenth century, (the banking acts of 1894, authorising the creation of agricultural credit companies, and of 1899, creating regional credit companies). Finally, small entrepreneurs and craftsmen complained of difficult access to bank loans, so the finance minister, Caillaux, created a commission in 1911 which was responsible for filling this gap in the banking System by preparing a law that would favour the development of the 'banques populaires'. The law was passed in 1917. Although banks were still widely held in low esteem, they were nonetheless able to attract a relatively large clientele and develop their operations considerably. In 1914, the Crédit Lyonnais was comparable in size to the largest banks of the City in London.
Source: Alain Plessis