Predicting the past: Understanding the causes of bank distress in the Netherlands in the 1920s

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    Why do some banks fail in financial crises while others survive? This article answers this question by analysing the effect of the Dutch financial crisis of the 1920s on 142 banks, of which 33 failed. We find that choices of balance sheet composition and product market strategy made in the lead-up to the crisis had a significant impact on banks’ subsequent chances of experiencing distress. We document that high-risk banks – those operating highly-leveraged portfolios and attracting large quantities of deposits – were more likely to fail. Branching and international activities also increased banks’ default probabilities. We measure the effects of board interlocks, which have been characterized in the extant literature as contributing to the Dutch crisis. We find that boards mattered: failing banks had smaller boards, shared directors with smaller and very profitable banks and had a lower concentration of interlocking directorates in non-financial firms.

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    • Predicting the past: Understanding the causes of bank distress in the Netherlands in the 1920s

      Rights statement: @ 2015 Elsevier This is the author’s version of a work that was accepted for publication in Explorations in Economic History. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Explorations in Economic History, [VOL 55 (January 2015)] doi:10.1016/j.eeh.2014.09.001.

      Accepted author manuscript, 1 MB, PDF-document

    DOI

    Original languageEnglish
    Number of pages25
    Pages (from-to)97-121
    JournalExplorations in Economic History
    Journal publication dateJan 2015
    Volume55
    Early online date16 Sep 2014
    DOIs
    Publication statusPublished - Jan 2015

    ID: 11545246