One last aspect concerns the internationalisation of the Dutch banking system after World War II. Among the commercial banks, there was a rapid increase in the importance of foreign business from 1960 onwards, on both the asset and the liability side of the balance sheet. The statistics used (DNB, 2000) do not show whether the foreign liabilities arising from payments traffic concerns interbank items or also loan capital issued abroad. This requires further study.

Don’t forget to mention the war!

What DNB and many others have pointed to is the sharp decline in the leverage ratios of the banks in the second half of the 20th century. What everyone has so far ignored in the current debate on leverage ratios is that most of this decline actually took place between 1939 and 1945. So, the question is: what happened in the Netherlands from a monetary point of view during the war years, and how did this affect the leverage ratios of the Dutch banks?

The sharp decline in the leverage ratios of the Dutch banks between 1939 and 1945 occurred against the backdrop of explosive growth in total banking assets that was not accompanied by a proportionate increase in equity. The context in which this development took place was of course the occupation of the Netherlands by Germany between May 1940 and May 1945. Without going into too much detail here, it was the case that the money supply quadrupled in this period. This was due to a massive monetary financing of government spending (Klemann, 2008; Van Zanden, 1997). The banks’ balance sheets grew enormously during these years. On the asset side, this growth was more than fully explained by the claim on the Dutch government, and on the liability side there was huge growth in funds entrusted. The money purge that took place after the war also contributed to this. One aspect of the Beschikking Deblokkering (Deblocking Decree) 1945 that has not received enough attention is that this measure basically forced every household to open a bank or giro account (Mooij & Dongelmans, 2004, p. 57).

Table 1 in the appendix shows the change that took place for the commercial banks and the agricultural credit institutions between 1939 and 1945. During this period there was a huge increase in total bank assets. On the asset side, this can be amply explained by the explosive growth in claims on the government. On the liability side, there was a huge increase in funds entrusted. The result, of course, was a steep decline in de leverage ratio of all categories of banks. After the war, the leverage ratios of the commercial banks, which in these decades were becoming increasingly involved in retail banking, declined further to levels comparable to the previous levels at the agricultural credit institutions.

Banking failures

The current debate suggests a relationship between the leverage ratio and banking failures. Looking at the Netherlands we found that 76 commercial banks closed their doors between 1900 and 1990. The vast majority of these failures, 64, occurred in the period between 1900 and 1940 (DNB, 2000, p. 102). This was the time when the average leverage ratio at a commercial bank was still between 20% and 25%. Compare this to the agricultural credit institutions, not one of which went bankrupt during the same period, even though many of them were operating with leverage ratios of less than 5%. This illustrates that a diversified business, close attention to the quality of the banking assets, stable funding and access to good interbank and/or lender of last resort facilities are more important that the level of the leverage ratio alone. This is also shown by the analysis above using the simple examples in figures 2 and 3.[3]

[3] These figures should of course be interpreted with the necessary degree of caution. One of the biggest banking crises ever in the Netherlands was the loss of the Robaver in 1924. Even then, this was not a bankruptcy in the formal sense, since the government stepped in secretly to provide this bank with strong support. As a result, a search for this crisis in the statistics will be in vain (Petram, 2016). There will also doubtless have been problems at the credit unions during this period, however they were kept going by their central organization or a stronger fellow bank.

Sep	OCT	Nov
	04
2022	2023	2024