We identify similarities and differences in the scale and nature of the banking crises in 2008-9 and the Great Depression, and analyse differences in the policy response to the two crises in light of the prevailing international monetary systems. We find that the scale of the banking crisis, as measured by falls in international short-term indebtedness and total bank deposits, was smaller in 2008-9 than in 1931. However, central bank liquidity provision was larger in the flexible exchange rate environment of 2008-9 than in 1931, when it had been constrained in many countries by the gold standard.

Although central banks have pursued the same objectives throughout their existence, primarily price and financial stability, the interpretation of their role in doing so has varied. We identify three stable epochs, when such interpretations had stabilised, i.e. the Victorian era, 1840s–1914; the decades of government control, 1930s–60s; the triumph of the markets, 1980s–2007. Each epoch was followed by a confused interregnum, searching for a new consensual blueprint. The final such epoch concluded with a crisis, when it became apparent that macro-economic stability, the Great Moderation, plus (efficient) markets could not guarantee financial stability. So the search is now on for additional macro-prudential (counter-cyclical) instruments. The use of such instruments will need to be associated with controlled variations in systemic liquidity, and in the balance sheet of the central bank. Such control over its own balance sheet is the core, central function of any central bank, even more so than its role in setting short-term interest rates, which latter could be delegated. We end by surveying how relationships between central banks and governments may change over the next period.

This article argues that the crisis in euro area government bond markets reflects the same kind of stability challenges financial intermediaries face when confronted with a negative macroeconomic shock without having access to a lender of last resort. Nineteenth-century US banks operated under such a framework and used clearing houses in times of crisis as a co-insurance mechanism against contagious runs. Their experience provides valuable lessons for the ongoing reform efforts in the euro area. The analysis reveals that most of the instruments clearing houses used in the joint production of confidence are similar to the ones euro area governments have recently decided upon, such as the establishment of the European Financial Stability Facility. This suggests that the euro area crisis response has followed best private-sector practices of crisis management. However, inherent fragilities of co-insurance mechanisms as well as the long maturity and elusive quality of government debt present a challenge in designing a sustainable solution to the crisis without compromising on the original goal of euro area governance: ensuring sound fiscal policies as a prerequisite for maintaining price stability. To meet this challenge a substantially more comprehensive economic and political union might be needed.

In this article, we calculate a market-weighted return index for the 20 largest stocks listed on the Brussels Stock Exchange over the period 1833–2005, based on a new, unique and high-quality database. We find that this index captures the most important stylised facts of the value-weighted return of all shares listed on the Brussels Stock Exchange in this period. Our results support the empirical practice of concentrating on just the largest stocks. The indices we construct are based on one of the longest Belgian time series available. The indices take into account the exact dividends, the timing of the dividend cash flows and all capital operations. We are therefore able to decompose total returns into capital gain returns and dividend returns, which is not possible with most historical return series. We show that, to construct a credible return index, it is crucial to fully take into account dividends.

In the seventeenth century, Amsterdam and London developed distinctive innovations in finance through both banks and markets that facilitated the growth of trade in each city. In the eighteenth century, a symbiotic relation developed that led to bank-oriented finance in Amsterdam cooperating with market-oriented finance in London. The relationship that emerged allowed each to rise to unprecedented dominance in Europe, while the respective financial innovations in each city provided the means for the continued expansion of European trade, both within Europe and with the rest of the world. The increasing strains of war finance for the competing European powers over the course of the eighteenth century stimulated fresh financial innovations in each city that initially reinforced the symbiosis of the two centers. The external shocks arising from revolutionary movements in America and France, however, interrupted the relationship long enough to leave London as the supreme financial center.

John Moody published his first railroad security analysis and ratings manual in April 1909. This study analyzes several current issues by looking back at Moody's original intentions for constructing a ratings system. The study analyzes whether Moody intended his ratings to reflect his private information, or rather, to serve some alternative role, as with monitoring conflicts of interests or realizing informational economies of scale. The study uses an ordinal regression approach to evaluate a set of explanatory variables, constructed from both the manual itself and the panic months of 1907, to test the potential information content of Moody's ratings. At the time of Moody's first rating system, the illiquidity of the US Treasury market forced investors to seek alternative ‘high-quality’ securities. Indeed, Moody rated 38.94 percent of railroad bonds as Aaa, and rated 85.25 percent of railroad bonds as A, Aa or Aaa in his universe of railroad bonds rated. To further test the informational content of Moody's ratings, the study pursues a structural default analysis during the panic year of 1907, which yields results that indicate that the default risk of railroad securities was quite low at the time. These results provide justification for the high overall ratings that Moody assigned to railroad securities, and thus their role as near risk-free securities. Therefore, railroad securities, and Moody's ratings, played a particularly important role in the financial system at the time.

Unlike recent contributions in the field, which discuss the geography of British overseas investments, this article focuses on the growth of capital exports from Great Britain during the period 1870–1913. Using a broader concept of foreign investments, which includes foreign direct investments (FDIs), and refocusing on the push and pull factors emphasised in earlier literature, we propose a framework able to capture the long-run determinants of British capital exports. Moreover, the framework includes elements suggested by early and recent works such as the institutional setup of the international economy and the evolution of world trade. The most relevant result, in an error correction model environment, is that the timing of British overseas investments in the long run seems to be related to the evolution of world trade, domestic growth and to the role of India as a colony. On the other hand, the attraction elements of the borrowing countries, captured by the risk-adjusted realised rates of return abroad, have been proven to matter in the short run.

This article examines the potential conflict of interest of underwriters in London's foreign sovereign debt markets prior to the Baring crisis of 1890. We describe the main sources of information for investors concerning Argentina, whose government debt default contributed to Baring's collapse, and compare them with those of the underwriters, particularly Baring's. We then present some empirical evidence using data on bond prices and underwriting fees that demonstrate that Baring did not exploit its information lead to the detriment of investors. Finally, we present historical evidence that shows that Baring foresaw default before markets did and consequently planned a bailout loan that could not be issued due to political instability in Buenos Aires.

The decline of interest rates during the early modern period is considered an important factor in the subsequent rise of capitalist society. This article uses unique empirical material based on bills of exchange in Stockholm between 1660 and 1685 to estimate underlying ‘shadow interest rates’. It shows that annual rates ‘according’ to Stockholm were very high, mostly above 10 per cent, an indication of underdeveloped financial integration between Stockholm and the main European centres. There are also indications of a decline in these rates during the period studied, reflecting improved efficiency in Swedish financial markets.

This article provides a revised account of the development of financial instruments, money and banking in the early penal colony of New South Wales. It is found that private instruments monetised the economy, while the role of state debt, coin and commodities was to finally settle remaining balances. Money originated in the form of small merchant notes. These were created by the need to pay labourers and underpinned a local pound currency standard. A detailed review of colonial court cases and currency legislation reveals that the first bank was founded, contrary to colonial orders, to remove the disruptive impact of exchange rate fluctuations and to achieve a stable private note issue at par with pound sterling bills on London.

This article discusses the dividend strategy adopted by Norwegian commercial banks before 1914. Based on a unique data set covering all banks in the period 1882– 1913 as well as six other institutions for the pre-1882 period, I identify the existence of a strong bias towards the payment of high and stable dividends to shareholders. The origins of such bias lie in the specific institutional set-up of commercial banking, the expectations of shareholders and the absence of developed securities markets. Combined with a strong preference for high gearing, this feature contributed to increase the fragility of the Norwegian banking system.

We identify the timing of currency, banking crises and sudden stops in New Zealand from 1880 to 2008 using methodologies from the international literature and consider the extent to which the empirical models in that literature can explain New Zealand's crisis history. We find that the cross-country evidence on the determinants of crises fits New Zealand experience reasonably well. A number of the risk factors that correlate with crises internationally – such as domestic imbalances, external debt, and currency mismatches – were elevated for New Zealand when the country had more frequent crises and have improved in the recent (more stable) period. However, a time-series analysis of New Zealand growth over 120 years shows that global factors – such as the US growth rate and terms of trade – explain New Zealand growth fairly well, and that crisis-dummy variables do not have substantial additional explanatory power. This suggests that having sound institutions and policies may help avoid severe domestic crises, but will not be sufficient to avoid the domestic economic impact of the global business cycle.

The article aims to present an explanation for the complete absence of public municipal banks in the Southern Low Countries, and particularly in its two main principalities Flanders and Brabant, between 1400 and 1800. The reasons were complex, lying in a combination of the presence of adequate substitutes such as money changers, cashiers and town exchange offices (stadswissels) and countervailing factors (adverse economic conditions, insufficient financial resources, special interests of persons and lobbies). It is also argued that strong government control of the Antwerp urban debt prevented the local authorities from experimenting with a municipal bank.