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 paper answers this question by analysing the consequences of the Dutch financial crisis of the 1920s for 143 banks, of which 37 failed. Banks' choices in balance sheet composition, corporate governance practices and shareholder liability regimes were found to have a significant impact on their chances of experiencing distress. Banks bore a higher probability of failing if, on the eve of the crisis, they: were highly performing; were highly leveraged; had fewer interlocking directorates with non-banks; and concentrated their managerial interlocks with highly profitable banks. Banks which chose to adopt shareholder liability regimes with unpaid capital were more likely to experience distress, but could mitigate this risk by keeping higher portions of their equity unpaid. Receiver operating characteristic analysis shows that interlock characteristics in particular have a high predictive power.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EHES Working Papers in Economic History ; No. 35

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Bankruptcy; Liquidation ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Economic History: Financial Markets and Institutions: Europe: 1913-
• Subject: financial crises ; bank failures ; interlocking directorates ; shareholder liability ; the Netherlands ; the interwar period

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Colvin, Christopher L. ; de Jong, Abe ; Fliers, Philip T.
• Event: Veröffentlichung
• (who): European Historical Economics Society (EHES)
• (where): s.l.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/246966
• Last update: 10.03.2025, 11:44 AM CET