Category Archives: France

Models of Safe Banking? The European Savings and Cooperative Banks

Savings banks and cooperative banks in Europe

By: Dilek Bülbül, Reinhard H. Schmidt and Ulrich Schüwer (all at Goethe University Frankfurt am Main)

Abstract: Until about 25 years ago, almost all European countries had a so-called three pillar banking system comprising private banks, (public) savings banks and (mutual) cooperative banks. Since that time, several European countries have implemented far-reaching changes in their banking systems, which have more than anything else affected the two pillars of the savings and cooperative banks. The article describes the most important changes in Germany, Austria, France, Italy and Spain and characterizes the former and the current roles of savings banks and cooperative banks in these countries. A particular focus is placed on the German case, which is almost unique in so far as the German savings banks and cooperative banks have maintained most of their traditional features. The article concludes with a plea for diversity of institutional forms of banks and argues that it is important to safeguard the strengths of those types of banks that do not conform to the model of a large shareholder-oriented commercial bank.


Review by Anthony Gandy

In recent years I have had the pleasure of teaching banking strategy and banking regulation to professional bankers, the vast majority from the Anglo-Saxon sphere. This is a real challenge, they have greater experience of retail, business and corporate banking than I will ever obtain. However, one thing I do know is that they struggle to cope with the concept that the listed, publicly traded, universal bank is not the only institutional model in town. It is of course not the dominant model in many countries. There are real rivals many different backgrounds that challenge the listed banks and have many strengths; to a large degree these strengths maybe due to the restrictions placed upon them.


The paper Bülbül, Schmidt and Schüwer is a White Paper (No. 5) on Policy from the Center of Excellence SAFE – Sustainable Architecture for Finance in Europe (Goethe University Frankfurt) and was distributed by NEP-HIS on 2014-01-17. It outline the characteristics of savings banks (those with a public ownership foundation, even if that is no longer the whole case) and cooperative banks across Europe and detail the history of these two institutional forms in German, Austria, France, Spain and Italy. Clearly the primary example is Germany where the three-tier banking structure is live and well (if we exclude a few issues!). In Germany there is a co-existence of public savings banks, cooperative banks and private banks. In other regimes the model has changed, but in the case of say France, the cooperatives are incredibly strong even if some of the localism of these institutions has now been lost.

The authors define seven features of savings banks; however, through the passage of reform (some they argue may have been misguided) only the first two are now common across the markets they have reviewed:

  1. A focus on savings and savings mobilization
  2. A clear regional and even local focus
  3. They were/are “public” banks owned or sponsored by a public body in a specific region or locality, and those authorities had/have “obligations” in respect of these local institutions
  4. They are organised under a “public” law, though the authors do not really define this
  5. They were expected to support the local economy and the local people and financially sustainable enterprises
  6. They were expected to adhere to the region or locality of the sponsoring public body – thus avoiding competition between such banks
  7. Maybe most importantly they were part of a “dense and closely cooperating networks of legally independent institutions that constitute a special banking group”

While, to all intense and purposes the seven criteria still hold good in Germany for savings banks, elsewhere it now tends to be just the cooperative banks which maintain the sense of locality, network and non-competition between local and regional players. Even here though, many cooperatives look and act like major national banking groups, some are even competitors in the investment banking markets.

The authors review the two hundred year history of the German savings and cooperative banks, and that of other nations. Though, of course, this is done very swiftly given the space limitations they have. They also try to illustrate how changes in the system has led to weaknesses in some industries which have moved away from the German model. As is outlined in the discussion below, the end of cooperation and coordination of between savings banks in Spain, where local savings banks did not compete in other regions, has had enormous consequences.

While the history is brief, it is informative. I for one was not aware that Raiffeisenbank was named in honour of Friedrich Wilhelm Raiffeisen who in the 19th Century established the concept of rural cooperative banks networked to centralised services organisations. The name is also common to Austrian cooperative banks and is the foundation of the movement elsewhere. I feel I should have known this. The history, especially in recent years is also important in showing why Germany has performed differently in this sector than other countries which ostensibly had similar three-tier frameworks in the past.

In the other country reviews, the focus is more on the last twenty five years. In France for example the cooperative banks have come to dominate much domestic and even international banking. They absorbed the smaller French public savings institutions (through the mergers which resulted in Banque Populaire Caisse d’Epargne (BPCE)) while Crédit Mutuel (CM) and incendie-du-credit-lyonnais[1]Crédit Agricole (Credit A) have acquired a number of private banking groups building corporate and investment franchises. Of course the ultimate expression of this was Credit A’s acquisition of, how shall we put it, the accident prone Crédit Lyonnais giving it stake in corporate and international banking in France.

The author conclude by reviewing (as they do also in the country reviews, especially in the German one) past and current literature on whether public savings banks and cooperatives are inefficient, not incentivised to be competitive or even whether they carry higher risk. Their conclusion is that older research which support these points have now been supplanted by newer research which invalidates these arguments, especially in the light of recent events.


One could argue that the case they make in their paper that German local public savings banks did not suffer to any large degree in the financial crisis could be countered by two points. Firstly, while the local savings banks had little exposure to securitised markets or to southern European debt, the structure of their industry would not really allow this anyway. These banks are local, however, they also provide funds to the Landesbanken which act as the central services and, effectively, the centralised treasury. It is they which then use funds to access corporate, investment and international markets. As the authors have point out, the Landesbanken have been hard hit in the financial crisis. Effectively the savings bank and the cooperative banking sector disaggregate the banking activity network into those which take in deposits and fund local projects and those which play a centralised role supporting the local institutions with an infrastructure and acting as their representatives in international wholesale markets. So they do not make perfect comparators to the more integrated large commercial banks. Secondly, while German has suffered from exploring the deposits of its savings banks and other banks abroad to fund various assets, the local German economy has not suffered, so the savings and cooperative banks have not been tested at local level, not this time around anyway.cartoon120621_2_full_600x400[1]

Secondly, the Italian section is a maybe little brusque. While savings banks and cooperatives along the German model have existed since the late 19th century, it is stated that they have not really established themselves to such a large extent and have been privatised. However, some of the arguments put forward for the benefits of public savings and cooperative banks are that they maintain localism. While Italy has clearly done much to privatise and get local politics out of their banks, they still certainly maintain more local banks than say a UK or Ireland as a proportion of their banking industry. In addition, while the word “Foundations” is mentioned iceberg-montepaschi[1]once, we rather skip over the important role they play in the governance and ownership of certain Italian banks in which the Foundations play such a large role and which still own a large proportion of the bank, including and rather notably the oldest of them all, Banca Monte dei Paschi di Siena, which so obviously faces an existential crisis.

Policy and Teaching

The public savings industry which the authors really find was badly hit by financial crisis was the Spanish one. However, they make a very interesting point that the industry in Spain had already abandoned many of the seven characteristics of public savings banks the authors identified. Indeed they make the very strong case that by allowing the savings banks in Spain to become national and to expand in areas they had little experience, they were attracted to the booming area of commercial mortgages, the vast majority used to fund the property bubble which would so damage Spain when it burst.

This last point is an interesting one as it shows the consequences of changing a system of ownership and governance under pressure to reform for only one reason, in this case the European standardised view of competition. Given banks are at the heart of the monetary system, consequences elsewhere in the economy have to be considered. Until the 1970s the Spanish savings banks were public institutions and somewhat politicised. Accession to the EU in 1986 brought pressure to reform and to liberalise, and yet while elements of competition were reformed, the governance of these institutions was not improved; fiefdoms remained, spurred on by growing competition. Of course the EU is hardly to blame for house price falls of up to 53.5% in Spain, but it does emphasise the importance of working through the long term consequences of policy changes which may interact with other events.

This paper not only gives teaching staff the opportunity to expose students to other banking governance and ownership possibilities, it discusses how changes to the model once common to all public savings and cooperative banks have potentially undermined some of their advantages and led to unintended consequences. It will be in the student reading list next year for sure.


The Origins of the Modern Concept of Money

French economists and the purchasing power of money

by Alain Béraud (, THéorie Economique, Modélisation et Applications (THEMA), Université de Cergy-Pontoise (France)


When French economists read The Purchasing Power of Money, they were primarily interested in the equation of exchange and the reformulation that Fisher proposed regarding the quantity theory of money. This reading led them to ponder the meaning that should be given to this theory and to study its empirical significance. Some of them, namely Rueff and Divisia, went further still and considered Fisher’s work as a starting point for their own analyses, which were related in particular to the monetary index, the integration of money into general equilibrium theory and the analysis of monetary phenomena in an open economy.

Keywords: quantity theory of money; price index; theory of purchasing power parity; marginal utility of money; integration of money into general equilibrium.


Review by Bernardo Bátiz-Lazo

This paper was circulated by NEP-HIS on 2013-03-30. Alain Béraud, its author, offers a detailed account of how many French economist criticised Irving Fisher’s (1867–1947) quantity theory of money while others supported it. In particular, he explores the extent to which Firsher’s ideas appear within the work of two great French economists, namely François Divisia (1889-1964) and Jacques Rueff (1896-1978).

Alain Béraud – Professeur de Sciences Économiques
(Université de Cergy-Pontoise)

Fisher’s formulation of the equation of exchange (where the total price of commodities sold equals the total value of the money that was given in exchange) is now part and parcel of every undergraduate programme in economics. It is integral and fundamental to the current understanding of macroeconomic management. Given this plus the rise of digital payments, mobile-phone wallets and crypto-currencies like Bitcoin, it is important to remember and indeed timely, to have an in depth discussion about how our conception of money – then measured as notes and coins – came to be and how it was shaped by dissenting views. In this regard says Béraud:

From the time of its publication through to the 1930s, The Purchasing Power of Money was the reference work for French economists who interpreted it as the modern, rigorous version of quantity theory. But this theory was hardly popular. It is therefore not surprising that many French economists, while recognising its merits, fiercely criticised it. It was only in the 1920s that Rueff and Divisia, both graduates of the École Polytechnique where they had been students of Clément Colson, used this book to develop their own analyses of monetary phenomena. Here, I have defended the idea that their contributions were certainly original but were nonetheless based on ideas that Fisher had supported.

Front of French frank coin (1996), commemorating the life of Jacques Rueff

As noted above, through his narrative Béraud compares and contrasts how the work of Fisher was incorporated into the ideas of French economists. He also offers a rich discussion of the reasons why there was dissent and why many took exception and actively criticised Fisher’s work.

The picture that emerges from Béraud’s work allows us to see how economist of the early 20th century on both sides of the Atlantic are engaging in a type of debate that now dominates the discipline, namely highly quantitative and empirically based. Something that, I thought, only took place after World War II – and thus, happy to be set straight. Moreover, this sort of debate was something that, according to Walter Friedman’s brief biography of Fisher, characterised Fisher’s early contributions to our understanding of macroeconomic phenomena. However, we are not provided by Béraud with enough detail to ascertain if a debate with such characteristics was widespread in France or whether it is Béraud’s reconfiguration of the debate between monetary factors and prices, that which leads us to emphasise its quantitative, formal, empirical aspects.

It was also interesting to know that the contemporary discussion of Fisher’s ideas was hampered by lack of available data. For instance, Béraud notes that at this point in time: “data on bank deposits [was unavialble]. Only some establishments published monthly statements.” Here, in my view, some more context as to how and when such measures came to be mainstream and a brief reference to the overall construction of macroeconomic statistics in France would have given a bit more sense of perspective to the discussion.

In the same vein, I would have liked, as a manner of introduction, some context as to why, how relevant and how widespread the debate of Fisher’s ideas was in France during the interwar period. It seems French economists are very concerned with determining exchange rates and the future of the Gold Standard at the end of the First World War. But this is only mentioned in passing. For the international reader it would have also been helpful to have an introduction as to the broad configuration of French economists groups or lines of work at this point in time.

But for all my comments and on balance, this paper makes an interesting read.

François Divisia (1889-1964) – a founding member of the “Econometric Society”

Why were the Cathars killed but the Huguenots not?

Legal Centralization and the Birth of the Secular State

By Noel D. Johnson ( and Mark Koyama (, George Mason University



This paper investigates the relationship between the historical process of legal centralization and increased religious toleration by the state. We develop a model in which legal centralization leads to the criminalization of the religious beliefs of a large proportion of the population. This process initially leads to increased persecution, but, because these persecutions are costly, it eventually causes the state to broaden the standards of orthodox belief and move toward religious toleration. We compare the results of the model with historical evidence drawn from two important cases in which religious diversity and state centralization collided in France: the Albigensian crusades of the thirteenth century and the rise of Protestant belief in the sixteenth century. Both instances sup- port our central claim that the secularization of western European state institutions during the early-modern period was driven by the costs of imposing a common set of legal standards on religiously diverse populations.

Review by Chris Colvin

The cause of the transition from religious to secular government in Europe remains a heavily debated topic among historians of all flavours. This working paper, by George Mason University economic historians Noel Johnson and Mark Koyama, provides a novel explanation by marrying a formal model with secondary literature to construct an analytic narrative. Distributed by NEP-HIS on 2012-09-03, the paper contrasts the history of the Cathars and the Huguenots to argue that secularisation was a way for the French Crown to limit the costs of legal centralisation.

Johnson and Koyama argue that traditional accounts of European secularisation don’t quite match the history; the process commenced much earlier than existing explanations give credit to. Secularisation cannot be a product of the 18th century Enlightenment movement as it is observed at least two centuries earlier. And secularisation cannot be associated with the advent of religious toleration, a thesis advocated by the likes of Montesquieu, as it occurred at a time of religious strife. The solution offered in this paper is that a path towards secular government was taken because enforcing an intolerant orthodoxy was deemed no longer “cost effective” by Europe’s rulers.

Johnson and Koyama apply their theoretical model to French history. In so doing they are able to explain why the Cathars were the subject of a Crusade in thirteenth century, whilst the Huguenots were (eventually) permitted to co-exist with the official religion of the French state in the sixteenth century. In line with recent historical research, they note that the Cathars only consciously became a separate heretical religion when the French defined it as such in their effort to incorporate Languedoc into the French state; in reality their beliefs were very similar to the French orthodoxy. By contrast, the Huguenots were a self-defined separate religious and political grouping. The very process of state formation led to the Cathars being seen as a legitimate target for elimination, but permitted the Huguenots to co-exist with Catholics (following a short initial spike in persecution). The Reformation led to an increase in the bounds of tolerance because eliminating a highly cohesive and highly deviant new religion simply became too expensive.

The Cathars only became heretics when the French wanted rid of them in a very 13th century approach to state-building

I would like to see this model applied to the Low Countries, an analytical narrative I will now briefly attempt to start myself. Taken together, the people of the Seventeen Provinces (what are now the Netherlands and Belgium) can be said to have formed three separate groups: the linguistically and culturally homogenous Protestant Netherlands north of the Rhine delta (Holland and its hinterland), the Dutch-speaking Catholic Netherlanders (Brabant and Flanders), and the French-speaking Walloons in the far south. The fact that the Protestant north colonised and incorporated half of the Catholic south in its effort to break away from Habsburg Netherlands means that the new Dutch state had to either tolerate or eradicate the highly cohesive and highly deviant Roman religion it now found within its borders. In the end, it chose the former. Perhaps the cost of purging the Generality Lands of their separate religious identity was found to be too costly in the face of the protracted war between the Seven United Provinces and Habsburg Spain.

The construction of analytical narratives is an approach to economic history that has been popularised, above all, by Avner Greif in his work on the Maghribi traders. As a consequence of Greif’s choice of theoretical framework, it has become viewed by many in the profession as the application of game theory to history. Johnson and Koyama – the latter of whom teaches a graduate course on analytic narratives at GMU – form part of a new group of “analytic narrators” who use other rational choice frameworks in their research. This second wave may allow the analytic narratives project to grow from being merely applied game theory into a genuine independent methodology. I would like to see analytic narratives used elsewhere in business, economic and financial history; its use in business history in particular could prove fruitful, perhaps in the context of the “New Business History” project initiated by Abe de Jong and David Higgins.

“Nobody said it would be easy, and nobody was right.” On the (Im)possibilities of International Policy Coordination

International Policy Coordination: The Long View

Barry Eichengreen (, University of California at Berkeley (United States)


Abstract: This paper places current efforts at international economic policy coordination in historical perspective. It argues that successful cooperation is most likely in four sets of circumstances. First, when it centers on technical issues. Second, when cooperation is institutionalized – when procedures and precedents create presumptions about the appropriate conduct of policy and reduce the transactions costs of reaching an agreement. Third, when it is concerned with preserving an existing set of policies and behaviors (when it is concerned with preserving a policy regime). Fourth, when it occurs in the context of broad comity among nations. These points are elaborated through a review of 150 years of historical experience and then used to assess the scope for cooperative responses to the current economic crisis.

Review by: Manuel Bautista González

“The question is whether those who talk the talk also walk the walk.” (Eichengreen 2011: 1)

Barry Eichengreen

Financial turmoil in the European Union has been increasing in the last months. According to The Economist, credit in the eurozone is tighter than it was in the worst months after the Lehman bankruptcy. “Forget about a rescue in the form of the G20, the G8, the G7, a new European Union Treasury, the issue of Eurobonds, a large scale debt mutualization scheme, or any other bedtime story. We are each on our own”, wrote Simon Johnson and Peter Boone earlier this week (Johnson and Boone 2012). Paul Krugman has brought attention to the horrific consequences of the defeat of the European monetary experiment: “Failure of the euro would amount to a huge defeat for the broader European project, the attempt to bring peace, prosperity and democracy to a continent with a terrible history. It would also have much the same effect that the failure of austerity is having in Greece, discrediting the political mainstream and empowering extremists” (Krugman 2012).

It is in this context that this paper written by Barry Eichengreen and distributed by NEP-HIS on 2012-01-03 is an opportune “breathless historical review” (Eichengreen 2011: 29) of past attempts of international policy coordination in monetary, fiscal and financial matters from the last quarter of the nineteenth century to our days. In so doing, Eichengreen provides an interesting narrative centered in politics and institutions that complements optimally a reading of his classical work on the history of the international monetary system and global capital markets (Eichengreen 2008) as well as his most recent account of the US dollar as a dominant international currency (Eichengreen 2011b).

Continue reading

Financial Reporting and Consolidation in the French Interwar Aluminium Industry

Beginnings of financial reporting and premises of consolidation of accounts in the French aluminium industry, 1921-1939

by Didier Bensadon (
Associate Professor in Financial Accounting, University Paris-Dauphine, DRM


The expansion of groups of companies during the inter-war years is one of the most profound transformations in the structure of French capitalism. Studies in economic history have shown the importance of the subsidiary creation phenomenon in relation to Compagnie Générale d’Electricité, Energie industrielle or Schneider. By contrast, these studies are less interested in the specific arrangements for auditing subsidiaries and managing Company Groups. This article seeks to show how and why the directors of Alais, Froges et Camargue – The largest French company in the aluminum sector- established specific audit measures from the 1920s onwards. This research is essentially based on the company’s archives (annual reports, general organisation chart and memoranda from the general secretariat). Even if the results published in the annual reports should be treated with the utmost caution, in particular owing to the absence of accounting regulation in France in the inter-war years, they remain essential for assessing the important position of subsidiaries and main shareholdings in assets. The scope of the subsidiary creation phenomenon, which is behind the establishment of specific controls, is highlighted. This trend, far from being linear, is strongly influenced by the economic and political situation. The size of the Group’s growth gave rise to two types of requirements for the directors of Alais, Froges et Camargue, namely to audit the subsidiaries and to measure the group’s net cash flow. The response to the need for auditing the subsidiaries was provided by the introduction of financial reporting from 1921. Faced with the increasing number of subsidiaries and main shareholdings held by Alais, Froges et Camargue, this control mechanism was to be strengthened in 1931. Furthermore, the necessity of measuring the Group’s net cash flow led the directors in 1927 to draw up a financial statement whose conceptual foundations were based on those of the consolidation of accounts.

Review by Masayoshi Noguchi

This is an interesting piece of work distributed by NEP-HIS on 2011-11-03. Its analytical method is the traditional archival research and the object of the analysis is ‘the company’s archives (annual reports, general organisation chart and memoranda from the general secretariat)’ of Alais, Froges et Camargue. Citing Bouvier (2005) on Compagnie Générale d’Electricité, Vuillermont (2001) on Energie industrielle and d’Angio (2000) on Schneider, the author assesses the prior research as being less interested in specific arrangement for controlling subsidiaries and managing a group of business enterprises. To rectify the deficiency, Bensadon exemplifies the case of Alais, Froges et Camargue, born out of the merger in 1921 of the Produits Chimiques Alais et Camargue Company (PCAC) and Société électrométallurgique française (SEMF) engaging in energy and electrochemistry related activities along with activities in the production of aluminium. Recognizing the importance of the subsidiary creation phenomenon during the inter-war years for transforming the structure of French capitalism, the research proposes to explore how and why the directors of Alais, Froges et Camargue established a new management structure from the 1920s onwards.


To answer the question of ‘why’, Didier Bensadon argues that ‘[t]he size of the Group’s growth gave rise to two types of requirements for the directors…namely to audit the subsidiaries and to measure the group’s net cash flow’, preceding the legal framework under which ‘corporate confidentiality’ to protect the business interest of private enterprises was still stressed, the same pattern more or less recognized in the experience of Great Britain during the period from the late nineteenth to the early twentieth centuries (see for example Dick Edward’s A History of Financial Accounting).

For the ‘how’ question, the Bensandon forwards the idea that ‘the necessity of measuring the Group’s net cash flow led the directors in 1927 to draw up a financial statement whose conceptual foundations were based on those of the consolidation of accounts’. Specifically, the author’s indication is intriguing that a prototype of consolidated statement of cash flows came out spontaneously as a management tool to control the group’s financial strategies, rather than the means for external reporting. In fact, it has been pointed out, from the viewpoint of group formation of businesses, that greater importance may be attached to the consolidated statement of cash flows rather than to the balance sheet or income statement (for example see Heath, 1978; Heath and Rosenfield, 1979). Bensadon’s research on the Alais, Froges et Camargue helps to support the case, though unclear to what extent the findings would be generalized in French industrial society during the interwar period. Probably, his future research agenda will include the issue of how the argument for preceding origination of consolidated cash flow statement could be applied to other companies.

Bensadon’s analysis on the attributes of subsidiaries and the relationships with the required frequency of reporting will provide a useful guide for future research. However, he arrives at important conclusions in some places but without showing sufficient evidence. Sorting out of associated companies classified in ‘shareholdings’ category which became the subject of ‘close monitoring’ in relation to his Table 4 is a typical case. The reference system is also coarse.

In contrast, there is persuasive power in the author’s analysis on the shareholdings of Alais, Froges et Camargue for its subsidiary network created in accordance with the business strategy of the parent company making heavy investments on several strategic sectors, i.e. energy supply and chemical production. The archives utilized also vastly extends covering the company’s articles of incorporation, the notice of meetings and the minutes of ordinary and extraordinary general meetings, balance sheets and profit and loss accounts, minutes of board meetings, copies of large contracts, the complete set of annual reports and various other reports (especially those affecting financial programmes) for the subsidiaries. Effectively utilizing these materials, this piece of work has attained its objective.


Edwards J R (1989) A History of Financial Accounting, London: Routledge.

Heath L C (1978) Financial Reporting and the Evaluation of Solvency, Accounting Research Monograph No.3, AICPA.

Heath L C and Rosenfield P (1979) Solvency: Forgotten Half of Financial Reporting, Journal of Accountancy, January, pp.48-54.