The development of the banking system: from ‘revolution’ to stagnation

As a result of the relatively slow development of the banking system in the nineteenth century, its size and structure in 1913 differed from that of banking systems in other industrialised countries. The data presented in table 6.1 illustrate these differences clearly. The system of monetary transfer was much less developed in The Netherlands than in neighbouring countries; the proportion of total money supply (Ml) accounted for by notes and coins in circulation was 64 per cent, about twice the corresponding figure for Belgium and Germany. The importance of the composition of the money supply was reflected in the structure of commercial banks' liabilities: in The Netherlands the relationship between equity and deposits was much more favourable than in other countries. The background to this situation, a situation Johan de Vries has labelled archaic (Joh. de Vries 1989, p. 44) is discussed in chapter 5. The foremost factor behind this delayed development of commercial banking in The Netherlands was the large and very efficient prolongatie system, which brought together the supply of and the demand for short-term credit. As a result, banks played a relatively modest role in the money market and, because of the small or absent differences between short-term and long-term interest rates, had difficulties in attracting deposits to enlarge their activities. Only after about 1906 did the large commercial banks, which had hitherto almost exclusively provided short-term credit to commerce, begin to expand rapidly (figure 6.1 and table 6.2).