Banking Crisis of the 1880s in the Russian Empire: New Quantitative Data and Estimates

Abstract

The study deals with the most significant crisis in the history of Russian banking, which occurred when 49 municipal banks and 13 mutual credit societies went bankrupt from 1882–1889. Historians have explained the causes of the crisis in various ways; however, these explanations are not fully verifiable due to lack of consolidated quantitative data on operations for municipal banks and mutual credit societies. Therefore, a new quantitative data set on these credit institutions was composed for this study. Comparison of the dynamics of joint-stock commercial banks, municipal banks, and mutual credit societies for 1875–1895 revealed that the decline in municipal banks was particularly sharp and deep, and it did not correlate with the dynamics of other banking institutions. This paper proves that the municipal banks crisis was caused by the accumulation of bad loans, poor financial stability, and the lack of proper control by municipal councils and the Ministry of Finance. Overcoming of these problems launched a new phase of banking regulation and supervision in the Russian Empire, which has been underestimated in historiography. The “pushing out” of municipal banks from risky operations was necessary to protect the financial interests of the municipal self-government associated with these banks. However, the crisis also had a pronounced regional perspective because most of the bankruptcies occurred in the Central Black Earth Region, and therefore the crisis was caused by a contraction in agricultural exports due to falling prices, combined with local crop failures in the first half of the 1880s.