ARMY SERVICE FORCES MANUAL

I
. ~ Dis s em ina t ion 0 f rest ric ted mat t e r. - The i n for mat ion con
tained in restricted documents and the essential characteristics of restricted
material may be given to any person known to be in the service of the United
If Stat e san"d tope r son s 0 fun d 0 u bted loyal t y and dis c ret ion who" are coo per a tin 9
in Government work, but wi 11 not be commun icated to the publ ic or to the press
except by authorized military public relations agencies .. (See also par. 23b,
AR 380-5, 15 Mar 194-4-.)
Ii
HEADQUARTERS, ARMY SERVICE FORCES, 6 JULY 1944
ARMY SERVICE FORCES MANUAL
M3525
Civil Anairs
CIVil .AFFAIRS HANDBOOK
FRANCE
SECTION 5: MONEY AND
BANKING
HEADQUARTERS, ARMY SERVICE FORCES, 6 JULY 1944
Dissemination of restricted matter. - The information con
tained in restricted documents and the essential characteristics of restricted
mat e ria 1 may beg i v en t 0 any per son k nown t 0 be i nthe s e r vic e 0 f the Un i ted
Stat esand tope r son s 0 fund0 ubted loy a 1t y and dis c ret ion who e c 0 o.p era tin 9
in Government work, but wi 11 not be commun icated to the publ ic or to the press
except by authorized mi 1 itary pub1 ic relations agencies. (See also par. 23b,
AR 380-5, 15 Mar 194-4-.)
I'OMBERlNG SYSTEM OJ'
A!MY SERVIO. FORCES MAlroALS
The main subject matter of eaoh Army Service Jbrces Manual is indi
cated by consecutive numbering within the. following categories:
M1 - M99 Basie and Advanced Training
M100 - Ml99 Army Specialized Training Program and Pre-
Induction Training
1200"- lv1299 Personnel and Morale
14300 - M399 Oivil Affairs
14400 - M499 Supply and Transportation
M500 - M599
M600 - M699 Procurement and Production
M700 - M799 Administration
M800 - M899 Miscellaneous
M900 - up Equipment, Materiel, Housing and Construction

HEADQ,UARTERS. ARMY SERVlOE FORCES.
Washington 25, D. C. 6 July 1944
Army Servioe Forces Manual M352 - 5, Money and l3ank1ng in France,
has been prepared under the supervision of The Provost Marshal General,
and is published for the information and guidance of all ooncerned.
LSPX 461 (21 Sep
command of Lieutenant General SOMERVELL:
w. D. STYER,
Major General, General Staff Corps,
Ohie!. of Staff. .
OFFICIAL
J. A. ULIO,
Major General.
Adjutant General.
mTRODUCTION
Purposes of the Civil Affairs Handbook.
The basic purposes of civil affairs officers are (1) to assist the
Commanding General by quickly establishing those orderly conditions which
will contribute most effectivelY to the conduct of military operations,
(2) to r e d u c ~ to a minimmn the hmnansuffering and the material damage re
suIting from. disorder and (3) to create the conditions which will make it
possible for civilian agencies to function effectively.
The preparation of Civil Affairs Handbooks is apart of the effort to
carry out these responsibilities as efficiently and humanely as is.possible.
The Handbooks do not deal with plans or policies (which will depend upon
changing and unpredictable developments). It should be clearly understood
that they do not imply any given official program 'of action. They are rather
ready reference source books containing the basic factual information needed
for planning and policy making.
Revision for Final Publication.
Significant area information is needed (a) for civil affairs officers
charged with poiicy making and planning, (b) for the use of civil affairs
officers-in-training and (c) to make certain that organized data is in hand,
whenever 'events require' it. . .
Arrangements were therefore made with cooperating agencies to provide
pertinent information in accordance with a prepared outline.' This section
on Money and :Banking in France was prepared by the Board of Governors .of
the Federal Reserve System.
OFFICERS USING THIS MATERIAL ARE REQUESTED TO MAKE SUGGESTIONS AND
CRITICISMS INDICATING THE REVISIONS OR ADDITIONS WHICH WOULD MAKE THIS
MATERIAL. MORE USEFUL FOR THEIR PURPOSES. .THESE CRITICISMS SllOULD :BE SENT
TO THE CHm' OF THE SURVEY AND RESEARCH SECTION, MILITARY GOVERNMENTDIVI
SION, OFFICE OF THE PROVOST MARSHAL GENERAL, 2805 MUNITIONS BUILDING,
W.ASlilNGTON, D. C.' (OR PRONE WAR DEPARTMENT EXTENSION. 76"370).
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1.
/' 2. "
3.
4.
5.
6.
10.
11.
12.


15
16.
17
TOP I CAL OU T LIN E-
Geographical and Social Background
Government and Administration
Affairs
Government Finance
. and
Natural Resources
Agriculture
Industry and Comm,erce
Labor
Public Works and Utilities
Transportation Syatems
, ,
Communications
Public Health and. Sanitation ,
Public Safety
Education .
l'tlbl1C' Welfare
Cultural Institutions
*TJ1.is at
l1
d3" ,on: Money-and Banking iIi France
was prepared for. the MilitaryGove:rnm.ent ,
Division of the office of the Provost
Marshal General by the board of Governors'
of the Federal ReserveSystam.
FRANCE - MONETARY AND BANKING SYSTEM
CONTENTS
Page
SUMMARY
A. BACKGROUND INFORMATION
!. 'Before the First World War 1
'I
(The Bank of Franoe and the ourrenoy - before
the Franoo-"";Prussian War - The Union Generale inoident
and the development of deposit banks - The development
of other types of banks -Conolusion)
II. Period of the War
.9
III. The Period 11
(The'depreoiation and stabilization of the franoe
,Period of currency stability - Renewed currency
. disorder - Banking expansion in .the 1920' s '- Closer
relations with industry. - The banking crisis of the
early 'thirtIes - Renewed. bank-tng expansion in the
late 'thirties - Changes in 193'6 in control and
operations of Bank of France - Growth of publiobank,..
ing institutions in the inter-warperfod)
'B. MONEYAIID CREDIT INSTITUTIONS IN 1939
I. Bank of France 25
(Structure and organization - Note issue and currency
circulation - Other operations of the Bank of
- Discountsa.nd advances -. Market controls - Deposits
and .set'Vices - Comments on balanoe sheet)
II. Depoeit and Investment Banking- General Survey 42
(Legal framework -. General statistics -Origin of funds
- Use of The role of the banks in the money inarket
- The ba.Dks and the .oapital Non-lending operations)
III. Pr-ivate- 'Banks 61
.(Houseeof the "haute .banque" -Smaller private banking
houses)
ii
Page
The "Establissements de credit" 68
(Administration - Banking operations - Credit
Lyonnais - d'Escampte - Societe Generale
- Credit Industriel - B.N.'C.I. - Credit Commercial)
V. Banques, d
91
'(Banque de Paris et des - Banquede 1 'Union
Parisienne - Union des Mines - Banque Transatlantique
... Banque des'Pays duNord -: Banque des Pays de l'Europe
Cent.rale- Banks for industrial loans)
VI. The regional and local banks 108
(Large regional banks -Regional banks affiliated
with the Credit Industriel - Other regional and
local banks)
VII. Special banks 113
(SteFrancaise de Reports et Depots -,Banque Nat
ionale Francaise du ConnnerceExterieur - Banque
Francaise d'Accep'tation - CieParisiennede Reescompte
- Caisse qentrale de Reescompte- Special industrial
credit - Installment credit)
VIII. Colonial and Foreign Banks 120
(Colonial banks of issue - Other colonial banks
Franco-foreign banksl - Foreign banks in France)
IX. Public Credit Institutions--Collection of Savings 128
(The ordinary savings banks: Caisses d'Epargne Or
dlnaires - The Postal Savings System: Ca;i.s'se Nat
ionale d'Epargne)
X. Public-Credit 'Inst'itutions--Management ofStateCredlt 134
(Caisse des Depots et Consignatttons - Caisse Autonome
d 'Amortissement - Other institutions in thefi'eid of"
state credit) ,
- iii -
Xl. Public Credit Institutions forSJ)ecial Economic
;, ' <"_.,,\;
Groups
140
(Mortage fiI;l$.ilcing of hOllsi*g -
Foncier de France .... - credit .institlltioD.s
for industry and trade - Cre.dit National -People r 13
bankS' - Crea.'it for cooperat:Lves- PajlIl-shbpS)
XII. Private Insurance compamies
153
- (I>e:ve,lop:m.ent of legislation .. Insurance operat
ions ... Qeneral statls,tics ... Leading companies)
XIII. Stock Exchanges
(Membership on the Parquet - Government of the
Parquet - Securities admitted on the Parquet
.;.; Trading on the Parquet - The 'term. market on
the Parquet - Settling transactions on the
Parquet - Financing term transactions on -\:jhe
Parquet 7 The Coulisse - The, Marche Hors-Cote)
C. WAR DEVELOPMENTS
1. .Pre -Arm.isti ce Period
175
(Gold ana. foreign exchange - Allg;L0-French Monetary
A:greeIIleAt - of Ert:m,ce - Other bE+Oking
develoPInents) ,,
II. Developm.ents Since the, Collapse of France
1. Impact of Occuvation
181
2. Ger.ma.:n Firiancial Exploita.tion 182
186
191
- iv
.Page
5. General Banking-Legislation,
. 199
(Regulation and supervision of the banking
profession .. Regulation of professions
connected banking) .
6. Developments in Commercial and Investment Banking 203
(The expansion af deposits - Increase in capital
funds- Change
0
in loans and -Reduction:
in fore1gnparticipations -Newfields of activity -
.Notewart'hy deveiopments in individual banks)
7 Public Credit Institutions 216
(Savings institutions - Credit National - Credit
and Soua-Comptoir des Entrepreneurs
Other 'publIc credit institutions)
8. Insurance Campanies 221
(Initial war measures - German acquisition of
British business after the - Vichy
legislation - Operations)
9. Stock Exchanges 227
(Regulation of trading methods
of stock exchanges)
- Reorganization
Maps
230
Index
233
- v .
.SUMMARY
The following report is divided into three prillcipal parts, deal
ing with (A) background information,(B} moriey.andcreditinstitutiona
ill 1,939,. and (C). wartime... developJ!Lents.. Part A reviews briefly the de
velopment of' currency ,and ba:n.king institutions in. France,emphas-izing
factors understanding of"{jhe present system and events
which may find a parallel during the periodfollbwing the present war.
Part B gives a deta.iled description of the pre-war system, which, in
all ita essential elements, has been maintained unchanged throughout
the period of the war. The lack of adequate banking statistics for the
war period also ma}(es it necessary in many cases to go back to the pre
war years for full information. Part C reviews monetary and banking
developments during the period of war ,and occupation, emph.asizing the
financial consequences of German exploitation of the country.
Part A
After some experiments in bimetallism, Fran,ce was 'effectively
upon a gold standard until 1914. The establishment of central bank,,:
ing in France preceded the wide development of other types.of banking
.in the nineteenth century. The:Bank of France, founded in 1800, was
at first a rival of existing banks. Its supremacy was assured when
it obtained a/monopoly of note issue in 1848. Its banking policy
marked by -,liberal distribution of loans at low and stable discount
rates, both large and small borrowers. Because of the
power gra;p.ted to the 200 largest shareholders, the old banking houses
known collectively as "La haute banque" were able to dUm1nate the
Bank' B management until 1936. The prestige of the Bank in Europe was
streIlgthenedby its accumulation of a. huge gold reserve.
produ'Ced dis*tinctive French types. of .finan
cial institutions: The oldest grpup,consisting of the, private banking
houses in the "hautebanque", origiIially engaged chiefly in floating
loans for the French and foreign governments and -also deal,t in gold, .
an4forelgn exchange. Expansion of business activity ab?ut them1ddle
of the -nineteenth century gave rise to the creation of banks in incor
porated form.. Four banks established between 1848 and 1864--the
Gamptoir dtEscompte,theCredit Industriel, the and
the Societe Generale--became leaders of the group called etablissements
de credit. -Their early activity in industrial financiIlg,. similar to
the .operations of .the famous Credit Mobilier, declined' in importance
as these instit1l.tions turned to short-termcolllIIlercial banking after
the cr:1siso;f' the' eighties.. .:Branch banking was highly developed by
these institlltions arid by the Bank of France. The ;banques d'affaires,
or bustness ba.pks,' specialized in flU'Ilishing capital for new under
retaining a interest in these enterprises
. They also. held depoSits and made ordinary short -term loans on a small
scale. Otherilnportant types were the regional which estab
lished speQial areas, aad the small ,local banks, whose
business suffered from thegrowing'comeptition of stronger institutions.
- vi
Government financing during the World War was aided by large ad
vances from the Bank of France and extensive investments by commercial
banks in Treasury bills. Increase was a more
iinportant feature 6fmonetary expansion than -the growth of depos-its.
Moderate depreciation of the currency occurred during the war years
but discontinuance of lonas fromabr.oad in 1919 caused a disastrous
fall in the franc. Because. of economic and fiscal-difficulties, this
fall continued irregularly until 1926, when effective steps were taken
preparatory to legal stabiltzation of the currency in June 1928. The
new monetary law reduced 'the franc to about one-fifth of its former
gold content and required the Bank of France to restore convertibility
of its notes into gold (however not in coin) and to maintain a gold
reserve in fixed proportion to its demand liabilities.
Banking activity expanded and new institutions were organized
after the World War to provi_de the increased financing required by
French industry. About 1930 bank failures began to have disastrous
effects which led to reorganizations and greater centralization of
banking. Nevertheless, expansion of bank deposits again occurred.
from 193p to 1938, following upon the inflationary exPansion of note
circulation. A feature of banking development in the inter-war period
was the expansion of public credit institutions of all types.
As the world crisis spread, a public policy of deflation in
France in 1934-35 brought about a political upheaval and the rise to
power of the Popular Front. The reforms of the Popular Front in 1936
included anew law for the. Bank of France wh!_ch practically placed
control in the hands of the Government and established equality. in
the voting rights of shareholders. The Ban;k 'was required to make
.new :temporary. advances to the State without interest and to redis
count short-term govem:ment paper. A new monetary law in the. same
year 'again devalued the franc, which thereafter no longer represented
a fixed weight of gold.' An' Exchange Stabilization Fund was set up to
stabilize the exchange value of the franc within limits fixed by the
law. In 1937 another devaluation made the franc a "floating" unit
express relation to gold. From 1936 to 1938 the volume
of temporary and permanent advances which the Bank was required to
make to the State was greatly increased.
Part 13
The chief central banking functions performed by the Bank of
France were the issue of notes and the proviSions of the ultimate
reserves of credit for the entire banking system. Althoughowned
by private shareholders, the Bank was in effect controlled by the
Government throusb: appointment ofthe three principal administrative
officers and a majority of the councillors who directed its opera
tions. Its 660 branches extended throughout the country, and the
:Bank's services .were available alike to banks and private customers.
- vii
The gold reserve of 35 per cent which the Bank was required to
hold against its notes and other demand liabilities was usually greatly
exceeded by the actual gold holdings. The note issue of 109 billion
franc/s(December 1936) represented about2,600fran,cs (appj:'oJ(-:i;1fi.8.tely
$75.00) :per .capita. Currency was extensively used for business trans
actions" the use of checks being but little developed. As the price
for itsmoIloply of note issue, the Bank had to make certain pay.ments
to the State an<:l, for the duration of its privilege, grant the State
non-interest-bearing loan. Various gratuitous
also performed for the Government.
Discount (including rediscount) of commercial/paper was
ally the chief business of the After the reform of 1936 it was
required to discount for bona fide holders three-months
Granting of short-term advances to customers on public or semi-public
securities was a function of the Bank at all times, and in 1938 it ob
tained the power to buy and sellon the open market short-term public
securities and pJ;'ivate bills eligible ror'discount., At least one
fourth of the J3ank I S asset,s at the end of 1938 consisi?ed of obligations
of the state and State-controlled.agencies.
Deposits were held under various for individuals,
banks, and other /organizations. Transfers between these accounts and
between the Bank and the postal checking system constituted a large
part of French clearings. Relations between the central bank and
other banking institutions were freer of any regulation. Some degree
of competition, in fact, existed between them in the commercial field.
Balances were niaintained at the central bank by other banks as supple
mentary cash reserves but ,were not.reported separately among their
assets or among the liabilities of the Bank of France.
at the central bank was practiced principally by banks of second rank
rather than by the leading commercial banks.
A general survey of deposit and investment banking shows the wide
variety institutions. Public banking
had a specific legal character and operated under special Jaws, but
banks in the "private sector" were subject to no special legislation.
Those organized in corporate form were subject only to the 'general
laws governing corporations. Banking statistics were inadequate and
the reports and balance sheets issued by the banks were. conspicuously
lacking in uniformity. At the end of 1935 there were ab9ut 9,300
banking offices in France (exclusive of public and semi -public msti
tutions); more than two-thirds of the tQta'l belonged to the 23 princi
pal banks. The degree. of .centralization prevailing, is shown by the
fact that at the end, of 1935 some 70 per cent of the dema.nddeposits
held by banking corporations operating in the domestic field was with
the 6 large deposit banks and a further 18 per cent was held by 5.
large regional banks and 5 la;rge bll.s1ness banks. In view of the
preponderance of. cash payments over checkpay.m.ents in France, the
amount of deposits in bank
13
was strikingly low as compared with tp,e
United Kingdom and the Uri1t'ed States.
- viii
Because of the facilities offered <by the Bank of
ing funds promptly by redJsdountsand .adva.Ilces, the. baDks were potentially
in a very liquid pos:ttfoIl0y' the end of 1938.. Rates of interest on de
posits wereestablishedby tile bankers'association as a function of the
discount rate of the :Bank of France. At:theend of 1938 when the la.tter
rate was 2 1/2' percent, the ,rates.. payable on demand deposits, by the large
deposit banks waS 1/2 per cent. - Higher rates were efl"tablished for provin":"__
cial banks and other sma.ller institutions. The acheduled rates, however,
were not always strictly maintained. Savings placed in deposit banks bore
higher rates and those in public savings institutions the highest rates of
all. '
Private banking houses in France were not required, as were the in
corporated banks, to.publish balance sheets or reports on their financial
position. Only general inf'ormation regarding them is available. Most of
these firms maIlagedfa.m.1lyfortunes of wealthy partners,and their limited
number of customers included other wealthy persons, members of the old
nobility, and owners -of large landed estates. Foreign governments and
large French and foreign. corporations were among their customers. In the
international field, they engaged in foreign exchange and acceptance
business and held interests in many foreign 'banking enterprises. Their
chief domestic interests were in insurance and railway corporations, on
the boards of which they were prominently represented. Probably the best
known hame in this group is that of de Rothschild Freres. Lazard Freres
et Cie, because inoreasingly praminentinFranco-American transactions
since 1920. the group of old.er'and larger establis:b:ments) there
are 'several smaller private banking houses of same prominenoe.
The great repositories of funds held by the ::public, aside fram. the
savings ba.D.k:saild otl1erpublicinstitutions; were the "etablisssments de
credit" jthe .. most important of which were ,the Credit Lyonnais, .the "
Comptoir d'Escompte, and the Societe Generale . The "big three
u
in 1938'
held 40 per cent of the total deposits of all French banking comPanies.
The the Credit Commercial,.and the BanquelVationaJ.e
pO}1I'le Commerce etl'Industrie ("B. N. C. I.") complete the/group of
six major banks., Thecapital stock of these banks was very:W1dely held,
and througb. .. lnterlo6king .directorates close connections with
numerous other .f.ilancia.1 and Industrial corporations .. They had a widtl
spread branch f":."ganiza:tionand,were large-scale distributors of secv,r..
ities, rather than a,s The.credit
Industrial confined. its aWn activit.ies to Paris andltssuburba, where
it maintained.57 but ina group-of',
afillated i of . .'All six
banks had over their in 'the form of comminfcfa.1 and Treaaury
bills,and the bu.1k of their lo.ans was made atshort-,term to industry
and trade. Through affiliated enterprises, they were often responsible
for industrial: in addition to thatshgwnon their own balance'
sheets .. The balance ,Sheets of thebankf:l furnished,littlespeclfic
information as to their business, most were believed to' conceal hidd.en
reserves.
- ix
Business banks ("banques d'affaires") were distinguished by exten
sive participation in so-called "financial operatioTI.s" , and by their
intimate relations with industrial corporations. InadditioIi. they
carrJ-ed ona considerable commercialbanklng business. The :.Banque de
Paris et des Pays Bas (The "Paris-Bas") and the' Banque de l'Union
Parisienne were the principal banks of this type; the Union des Mines
and other smaller institutions were also classed with this
The business banks, having no branches, used the facilities of the
large banks in distributing securities which they had under
written. The Paris-Bas specialized in foreign business, having ex
tensive participations in foreign banking and industrial enterprises;
the Uhion Parisienne was the principal bank_for French heavy industry.
A group of similar wstitutions was the special banks for industrial
loans, organized asa rule by the large deposit banks to grant long-
or medium-term. loans to industry. 'The "Ucina", the "Ofina" , and the
"Calif" were tb;e principal examples of this type.
Regional banks often developed extensive branch
in particular localities; the Credit du Nord, for example, operated
in 15 departments as well as in Paris. After the disastrous events
of the 'thirt.ies the regional banks which survived followed more
conservative policies than before. They engaged largely in ordin
ary commercial banking,although some frequently participated in the
. establishment of new corporations. Many Of these institutions'built
up connections with particular industrial groups, such as textiles,
chemicals, cotton, snipping, etc. One prominent group of regional
banks comprised the affiliates of the Credit Industriel. There were
also numerous local the importance of which
was steadily declining.
A number of special banks were devoted to particular functions,
such as making loans on securitiel8, financing foreign trade (the .
Banque Nationale Franciase de Commerce Exterieur), and promoting
acceptance business.
Among colonial banks, the banks of issue, although established
under French laws and subject to/ supervision by the French Government,
were privately owned and their scope of operations included partici
pation in' local enterprises. Other banks established by French capital
in the colonies conducted banking operations of all types. were
a large number of Franco.-foreign banks which utilized F:r;ench capital to
finance foreign trade and investment. Foreign banks in France were
active not only in performing services. for foreign -companies and the
tourist traffic but also in financing some. branches of 'export trad,e.
Public credit institutions, regulated and controlled in various
degrees by. the Govermnent,showeda tremendous growth after the Ffret
World War. Theseorgan.izatione,forming the "public sector" of the
banking system, beoame serious rivals. of the "private sector". The
Caisse des Depots at Consignations, the leadingpubllc institution,
held a larger volume of funds at the end of 1938 than all the non
public banks together.
- x -
Ordinary savings banks, locally-organized, were of a "public or
semi-private They served over 10 milliondepnsitorsin
1938: Savings System paid a lower rate of interest than
the ordinary savings banks but performed a wider range of services.
Depositors in." Postal Savings equalled the number in ordinary savings
banks. Savings institutions of all kinds were required to place
deposits received trom the public with the Caisse des Depotset
Consignations.
" The Caisse Depots et Consignationa, l::Ldministeredby a GoV"
ernment -appointed General Manager, acted as a banker in handling
deposits of savings banks and certain trust funds. Otherf1Ulds were"
handled by the under instructions from the agencies concerned,
including various insurance and pension funds. The Caisse observed
strict legal provisions regarding its own investments which were
chiefly in Government and semi-public securltesit
The Caisse Autoname d
l
Amortissement was established after the
World War to perform certain functions of management and amortiza
tion of the :public debt. Among institutions with specia.lized func
tione tne Credit Foncier, originally a distributor of mortgage
cred-it andlatera lende:r to.local government bodies, was important.
'The Caisse Nationale de,Credit Agric'ole operated with Government funds
ana formed the basis of the national system of cooperative agricul
tural credit. The Credit National was the most prominent of the
various public credit institutions granting loans to special sections
of industry "and trade. Its original function was financing recon
struction of enterprises damaged in the first World War. Subsequently
it provided medium-term credit facilities to industry and trade in

Insurance companies in France were chiefly share companies but
a few mutualcompan1eswere in operation. Effective regulation of
life business began under the Law of 1905; other regula
tory"laws for different sectors of .insurance were those of/1898
(work!rien's compensation law) and the latter affecting all
share and campapies not falling within the scope of the two
preceding laws. Most of the companies in the 'thirties adhered to
agreeIrlents.on tariffs drawn up by pr-ofesslonal associ.ations repre
senting particular branches of the insurance business. The largest
of the companies were those engaged in life insurance businesS".
The ,stockenchange in Paris d0m4natedthe French trade in
ities} there were also. provincial exc:b,anges in eight ilnportant- cities
trading principally local' issues, The market in Paris is
the "Compagnie des Agents- de Change", known as the. "Parquet "; it held
a legal monopoly of trading in certain securities, including French
GOvernmentissues,and was accordingly subj e.ct .to Government su:per
vision under laws of adetalled and highly.restrictive character.
Industrial issues were less prominent on the Parquet' s list than
would'". b'e since same great enterprises in France were
- xi
family-held corporations whose securities were not listed on any public
market. With the exception.of about 70 very active issues,
on "the Parquet were traded solely on a cash basis. ,Term trading in
this limited number of issues probably exceeded all cash trading in
volume. The Paris Bourse also included two less-officia,1.markets, the
"Coulisse" and the "Marche Hors-Cate" ,which conducted trading
cipally in issues not listed on the Parquet. "
Part C
Pre-Armistice: Period.--Attheoutbreak of the war France introduced
exchange control and pegged the franc to the pound sterling at an of
ficialrate which is still formally maintained. 'It drew heavily upon
its gold reserves during the brfefperiodof belligerency,but did not
complete a projected mobilization of the forei'gIl ,assets- of- French resl
dents in support of the war effort. In December 1939, afar.,;;reaching
monetary agreement was reached with the United Kingdam.providing,inti
mate financial collaboration between the two countrieS. Almost all the
gold reserve was evacuated before the annistice.
The crises at the outbreak of the war and again during the Blitz
kreig in the West had serious financial repercussions in the form of
withdrawals of currency from. banks and savings institutions and a
general urge for liquidity. However, the Bank of France resolutely'
supported the market without increasing its discount rate and there
were no untoward developments. During the pre-armistice period as a
whole, the Bank of.France supplied loans'to the Government on a'liberal
scale. Certain pre-war loans were cancelled against afresh
tion of the Bank's gold reserves iIi. February 1940. This inflati'onary
financing caused a basic upward trend in bank deposits and note circu
lation.
. Devel.opmentssince the Collapse of ,France. --The German occupation
of a large part of France including Paris brought a period of initial
confusion, during which the occupation authorities setup their own
banking institutions issuing a special occupation currency/for the
needs of the German forces. German bank supervision machinery was also
established. The Vicby Govermnent was shortly obliged to'provide a
huge daily tribute in franc currency, certain supplementary occupation
costs, and a clearing mechanism for trade between France and Ger.m.a.ny.
The levies made upon. France for are the root of
the whole financial evolution of the country since the armistice. The
rate of' the basic daily payments has been twicealtered, but in each
of calendar years 1941 and 1942 about 130 billion francs (including
supplementary payments) was exacted; in 1943, as a result of an in
crease in the rate of the basic payments lit November 1942 when the
whole of France was taken over by German, forces, the figure may reach
190 billion. This huge tribute, plus the additional cost of financing
exports to Germany through the clearing, .. has laid.a crushing. burden on
the French bUdge.t. These sums have had to be raised entirely by bor-
,rowing, mostly atahoI1; "4erm from the banking system and to a substan
tial extent from the :Bank of France itself. .
- xii
The iIIlpact of this inflationary borrowing upon the Frency monetary
and credit system was'reduced for a while ,by the fact that the German
authorities, being unable to spend the tribute as fast as it was re
ceived, large amounts in their account at the Bank of
France. However, during 1942 the rate of their expenditures greatly
exceeded that of their receipts, and. by the end of January 1943, the
idle balances held by the occupation authorities were reduced to a
small figure. Apparently they have since been able to subsist on the
increased occupation payments initiated in Novem.ber 1942.
Under the occupation regime, the Bank of France hasbecom.e simply
a tool of State for pouring out funds to meet the occupation levies.
The resulting abundance of money has reduced'toa minimum. all other
credit demands upon the Bank, and by June 1943, almost the whole of its
assets--aside frO:in the gold. reserves deposited'abroad--consisted of
direct and indirect clairn.a oil the State. During the occupation period
as a whole, Virtually the entire credit expansion of the Bank has been
reflected in a rise in the notecirctilation, wh:ichby 1943 had
reached 427 billion francs or three arid one-half times the level for
the summer of 1939. The Bank's organization was modified in November
1940 in such a way as further to strengthen the Government's influence.
The eJq)8.Ilsion in. the :note circulation is the key element in the
French inflation. Uepositswith banks in the "private sector" and with
publlc'sa11ings i:nstitutions have also shown a marked growth, but in
accordance with French habits, ," the increased growth of purchasing
povrer in the hands of the public has ,largely taken the form. of cur
AlthOUgh a substantial proportion Of this currency is imbi
lized in hoards, the pressure of spending power upon a market deprived
of much of its nortnal supply of goods has, seriouslY,threatened the
stability of the price level. Despite price control and rationing,
abortive attempts to "mop up" consumer purchasing power- through govern
ment loans, and various monetary devices; ,official maximum. price,e, in
the middle of 1942 were double the pre ...war level, and "black :market tf
prices were many times higher, depending upon the scarcity,:position
of the particular cOIttrll.pdities. Although the exchange valu.e of the
franc has been artifically stabilized, ita depreciation iIi te:rrn.s of
domestic goods anc1 servioes has continued apa.ce. One resut was a
"W8.veof stock exchange specUlation which was combatted by the Viohy
Government with a. series of restrictive measures.
In June 1941, France adopted f.or the first time comprehensive
batlking legislation, and control of Frenchb8.nks by'German cOnimis
sionerswas discontinued. _The new laws fomed part of the general
Vichy legislation, introducing a "directed" economy. Sweeping con
trolover batlklng organization and operations ,was vested in the
StateSe'cretary for Finanoe and in "corporative" bodies for the
banking and allIed profession6 set up under the secretarys d!rec
ti'OD..
- xiii
From such information as is available concernines general banking
developments ,-it is apparent that the deposit banks, theprovin;..
cial and local banks) and even the business banks have found little
scope for their normal lending activities .. enjoyed a, great
influx of deposits) reflecting the abundance of money and the short
age, of commodity stocks, but have found little. outlet for their-funds
except investment in Treasury paper. It is likely that well. over
half-of their assets--and a much higher prop'ortiqu
assets- -represents __ claims opthe State. The ' growth'?!
necessitated numerouscapital increases in order topres'e!re','t1l8" .._.
accustomed ratio between the banks' other
liabilities. ' -'
The business, banks have been growing at an accel-erate4 rate., ahd
their operations have become increasingly similar to those,-()fdepdsit
banks. Small local _ seem to have shared butllttleintl+egen
eral expansion. While the French banks have lost- to theGerm.ans
most of their interests in Central and Eastern Europe, this has been
partially compensated by intense activity in the colonies (especially
North Africa).o In thedbmestic field, the. financing of new industries
for "ersatz" products has, offered some scope for promotion activities.
There has not been any extensive Germanpenetrationirtto the
structure of, French banking except in Alsace-Lorraine. Enemy (British
and .American) banks are administered by German commissioners, as are- .
many Jewish enterprises, including the imI>ortarit private banking houses
of Rothschilds and LazardB Freres. In addition two important semi
I>ublic German banks have established themselves in Paris. In general,
however, the Germans have utilized the French banking system
as in Eastern Europe--acquiring ownership of leading institutions.
Despite the: extensive hoarding of deposits with savings
institutions have risen steadily; by the middle -of 1943 they amounted
to nearly 100 billion francs as compared with 64 billion at the end of
1939. This development has been officially encouraged, the/limit for
deposits by individuals havingqeenraised, and differential interest
rates having been introduced to reward deposit.ors who leave their
idle. Nonetheless the rate even for the favored 'depositors
has been reduced since pre-war days, in line with the general trend
of interest rates. Rates paid by the ordinary savings banks continue
to'be higher than those offered by the Postal Savings System, and
deposits with the fqrmer are still substantially larger than those of
the latter. The composition of" the Commission supervising savings
institutions has been entirely changed, giving the Government full
control,.
The organization of other public credit institutions, such as the
Credit National,'Credit Fancier, Caisse Nationale des Marches de l'Etat,
etc. has been revised with a view to assuring greater state control.
In the case of the Credit Fancier, the former privileged position of
the 200 largest shareholders has been abolished. The Credit National
-xiv
has returned in part to its originalfUIlction,i.e.grai:lting loans for
the reconstruction of war damage. The Foncier,finding little
new business in its normal field,has also partiaipated in this pro...
gram through associate, the Sous-Comptoirdes Entrepreneurs. l\.gri
cultural credit institutions seem also to be in a very liq1J.id position
with small demand for their facilities.
The French insurance Dusinessunder the occupation has been char
acterlzedby the penetration of Germ.an companies into the gaps left by
the withdrawal of British firms--especially' in the reinsurance field;
and by the reorganization of this industry pursuant to another of the
Vichy laws a "directed" economy. The 1938 laws concerning the
conduct of operations have been extended and reshaped by a.
weJ;:ter <p:t new.decreeb and regulations, including a number instit;uting
of'f':ici,al ta,rif'f' schedules Life insurEUlce seems to have become an
form of investment in the abse,nce of suitable
a:i.:t.ernatives ..
The.s.tock exchanges and the securities business have also been
the sUQjectof' a spate of decrees, aimed at directing securites
tradj.ng through channels which can be regtilated and observe'd. Most
shares must now be in registered (as contrasted with the bearer
for.rrl which formerly was the rUle), and any transactions off the bourses
must bere.Q'orded with an agreed agent. In February 1942, an official
Committee of Stock Exchanges was setup under the Secretary of State
for Finance, endowed with broad powers over all bourses. For the
first time the "cQulisses" were provided with a formal
comparable to that of the "parquets".
: Due to technical difficulties,no attempt has been
made to the diacritical marks on French words.
------
CIVIL AFFAIRS HANDBOOK
on
FRANCE
Section Five
on
PAR T A
A brief summary of the growth of the French monetary
and credit system is essential to an understanding of
the present s ituation. The various types of French
'banking institutions have been developed over a long
period and are accommodated to the French ,economic and
industrial structure. There was a rapid evolution
during the inter-war period in the course of which
private banking houses and smaller banks lost ground
to, the large commercial banks, while public credit
institutions assumed an increasingly important role.
FRANCE - MONETARY AND BANKING SYSTEM
A. BACKGROUND INFORMATION
I. Before First World War
The Bank of France and the currency
foundation of the modern banking system in France was laid
'With the establishment of the Bank of France in 1800. At first with
9ut afonnal charter, its organization and powers were laid down by a
law of 1803. In the same year, another basic law established a bi
mefallic currency, the franc being declared equivalent to 5 grams of
silver ,nine-tenths fine and 323 milligrams of gold., nine-tenths fine;
on the gold basis, the franc was equivalent to 19.3 cents u.S. 11
The Bank of France was formed under the patronage of Napoleon
Bonaparte, then First Consul. Its founding was inspired by the need
for/an institution to give credit on moderate terms in order to revive
comer"ce and industry after the devastf:3.tion of the Revolution. It was
also designed to serve the needs of the state ,not so Imlchby
a<}v"ances as by making loans to theptl-blic on government securities,
which it was authorized to do in 1808. Control, of the Bank was divi
ded between the Government - which named the Governor, two Yice ....Gov
ernors,and. three members of the General Council - and the 'principal
shareholders, who named' the remaining twelve "regents" on the General
Council. Administrative powers were divided between the Governor and
the General Council. A special feature of the statutes whtch was
amended only in' 1936 was thatonly the 200 largest shareholders', were
represE:}nted at shareholders' meetings, eacncasting one vote. Power
fUIFrenchbanking houses and wealthy families thereby exerted great
influence in the Bank's affairs.
The law of, 1803 gave the Bank a monopoly for 15 years of 'the nete
issue in Paris, which was duly renewed. At the same time, regional
issue banks were operating in ,several parts of France. In:l848 these
type"banks taken over by the Bank of France, which 'thereby ac
'quired the exclusive note' issue privilege'for France. At the begin
century, paper money was generally in disrepute, gold and
silver coins being the' principal medium of circulation. 'As time went
on, however, the growing prestige, of the Bank, based especially upon
itsacoumulation of impressive bullion reserves, conferred upon its
notes general aoceptability. The Bank found it 'necessary-to. suspend
the convertibility of its notes into gold or Silver on only two occa
sions before the first World War - in 1848-50 followirig a money panic,
and in 1870-77, during and after the France-Prus'sian War.
The chief function of the Bank was commercial
-Y,At 67 per ounce of fine gOLd
- 2 - '
It adhered to the policy of low and stable rates through most of its
history, and aimed at satisfying indiscriminately the needs of all
classes of business enterprises. Very small bills were accepted for
discount at the regUlar ,rate, 'andby'openi:ng numerous branches, the
Bank made its services directly available throughout the country. The
Bank accepted deposits but relied principally upon its note issue
privilege to provide the funds for its operations.
In 1865,France. joined with Belgium, Italy, and Switzerland- _in
thetatin Monetary, Union,ll the 'membe!'sof which agreed to accept
freely each other's gold and silver coins minted in the standard
weight and fineness establishe'd by the French law of 1803. In 1876,
largely because increased world production of silver threatened an ex
cessive inflow of the 'metal to France, the minting of 5-franc silver
" " . '. , "
cotns was suspended although those in circulation continued to be full,
legal tender.g/The Bank had lost an important part of its gold re
serv;es in 1873 when it supplied gold to the Government for use in
meeting the war indemnity. The country's favorable balance of
payments s oonallowed' the Bank to make good this loss, however', and
after the convertibility of its' notes was ree.stablished in 1877, France
was effectively on a gold .
On the eve Of the first War ,France held -the larges tgold
reserve in the'world outsldethe United' States (3.5 billion francs at
the Bank of France and some 5 or, 6 billion francs in circulation mak
ing' a total approaching,2 billion dollars). Upon this reserve was
based' the lmpress.fve. strength of the French banking system, which 'had
made the franc a leading world currency and Paris aninternatio:q.a.l fi
nan'cial center second only to London. Even the Bank of England 'had
tu:r:ned'to France for gold loans in 1890 and 1907. This happy position
was derived from France's consistently favorable ,balance of interns:
tio
ll
al whIch was in to its healthy and
well-balanced economic life. The "favorable" balance of internatioIJ.al'
payments (in which expend.l tures of foreign tourists were an ,important
factor) not only permitted the accumulation of gold reserves, but also
investors to build up a very large protfollp of foreign
investments, estimated at some 40-45 billion, francs before the World
War.
1/ Also adhered to by ,Greece in 1868'
g!The franc coins of smaller denominations, which were 'legal tender
only up to 50 franca, qontinued to be coined.
2/ Technically ana gold standard' since the Bank retained
the right-'to redeem itA notes in silver as -well as in gold.
- 3
Banking before.the War
About the middle of the past century, banking activities ou'tside
, . . '.'
of the Bank of France'were conducted largely-be private banking houses
in Paris and the provinces. " Some of the banking houses in Paris. were
already strong and beLonged to what was called the ,Haute Banque,
(high banking) an expression still used"'today. Some of the most im
portant houses in this' category were of Swiss' Protes"tant antecedents.
T'?thi-s group belonged such houses as Mallet, Mirabaud, Vernes,.de'
Neuflize, and Hottinguer. These names will recur in the discussion of
the modern banking system. There'wasalso the
sented by the Rothschilds, but including Oppenheim, 'd',Eichtal,
and the brothers Pereire.'
The primary activity of these "high banki'ng" houses was ,the
floating of loans for the French and foreign, governments"or Of aor
. poratesecurities issued mainly bJT" railway corporations., The banks
thus participated in the foundation of many great enterprises. rI'hey
also carried on. an important artitrage .bus iness', in foreign exchange
and bullion) and some of ,them developed an important acceptancebusi-:
ness. Their deposits were drawn from a restricted number of rich
families: and were used chiefly for 't'financia,l"operations (dealing in
securities, etc.). 'On the ,whole these houses belonged to the type
now called in ,France t'banques d' affaires" (business banks).
There were also, in Paris, and in most prOVincial ,centers, many
other banking houses 'ofvarying importance and of different standards.
They were, usually cal1ed'banquiers -escompteursor even simply escomp
teurs!" . ,:But the-ir deposits, when they held such, ,were general1y,limi
,ted.'rhey, engaged in 'loan and discount business for industry and
trade, very often with funds by bank'
of issue.
During the Seoond Empi-re, which coincided 'withe. remarkable ex
pans10rl of' the world economy ( the upswing of the ftlongl' business
cycle)., France also madeimportantecon01;n1c progress and financial
activities notably expanded; Banks in corporate form ("joint stock
banking" in English terminology) started and developed during th:t.s
per-iod'.Their,speclfio character as commercial (qeposlt) banks did
not immediately emerge, however" At first they devoted much atten
tion to investment and 'financial operations.
Speoial mention should be made of the Credit Mobilier which al
though no' longer in existence is stillaby-wordlriFrance and 'other
European cOIlIltriea The Credt t Mobilier was established in1852pri
marilyto'issue long-term bonds 'and to the proceeds for 'industrial
financing. Bu.t,althou.gh established with the authorization of 'the
Emperor y, the Credit did notobtaln permission to lsaue bonds.
Prior to 1867 no corporation could'be.esta.blished without the
specific authorization of the Gove,rnment.
- 4
Consequently its working funds consisted. only of its awn ca.pital and
of deposits. Nevertheless Credit Mobilier took a preponderant
part iIi the r1Iiancibg of French. a.nd Spa.nish railways and of various

and Spain. After a.while; howeve:r, its funds beoame frozen; besides,
the leaders of the C!'edit engaged in heavy speou.lation on the Paris
Stock Exchange.. Finally, in :18'67" it collapsed.
The first French corpo!'ation for short-term commercial banking,
the was 'established ,at Paris, in 1848 IIrJniediately
after the outbreak of the Revolution; with the collaboration of the
Treasury and the municipalitY'. It was designed to p!'ovidediscount
facilities for business dUring the crisis. Some years the sup
port of public authorities wa.s wIthdrawn and the Comptoi:r became an
ordinary banking corporati?n." g/ Under the Empire three other impor
banking corpora.tiona were'es:tablished: the Credit Industrial
(1853'), the Credit Lyonnais (1863), and the Societe Generale (1864).
They expanded rapidlyaIld became the group of leading deposit banks
for which the sxpresslop. Y1Societes de Credit" or "Establissements de
- Credit" is generally reserved. 2/
For about one or two decades these banks engaged in, finan-cing
industrial enterprises as well as in commercial banking; particularly
the Comptoir d'Escompte, which competed with the Credit Mo
bi lier, and the Societe Genera.le, which was g'established with the ex
press purpose of rivaling the Credit Mobilier.
The Union Genera.le indicent and th.e development, of depos it banks
After the France"'Prusslan war French banks participa
ted in the financial, activities accompanying the payment of the war
indemnity of 5 billion francs, a tremendous amount for this time;
then activity slackened as a ,reSUlt of- the world depress1qn. ,In 1880
81 there wa.s an outburst of financial activity; ,s, boom developed, fol
lowed by a. crash which ha.d very important effects on thesl.lbsequent
development of French banking.
Prominent in the speculative movement of the late 70' sand early
80's was theUni6n G-enerale, a. bank founded in 1878 and known 'for its
Catholic affiliations. Its aim was to raise French capital for
1.1 the expression "Credit MObilie:bank" was. used
-in Gountries to designate banks devoted to financing industri
al corporations; itlsequIva,lent to "business b8.nk"(ba.tlqlfe d'af
fa.ires).. The term is still Used in Germany.
g/ OftneslD1ilarCompt6irs esta.blished in provlnoial cities, some al
so became ordinary be.nking corporations, others were
2/ After the Fit-st World War two other banks 'jbinedtlie' g:fotip.
- 5
industrial and financial expansion abroad,'particularly in Austria and
in Southeastern EUrope. The bank founded the. Austrian Landerbank and
several industrial corporations. The shares of the Union Generale be
came object of great speculation in the Paris stock Exchange.
The efforts of the Union' 8 head - Bontoux -to penetrate the
circles of -"highfinance" aroused against him a strong resentment a
mong the older institutions. A syndicate was established to undertake
a raid against the shares of the Union Generale, the quotations for
which reached extraordinary levels. Bontoux committed the mistake -
so often committed by other financiers - of purchasing all shares of
fered at the highest quotations. Finally in 1882 the bank collapsed
during a severe financial crisis. 1/
The l&rge oommercial banks Withstood, without default,the runs
of depositors du:ring:the crisis, but they suffered heavy losse.s in
their holdings of industrial seourities.- The so-oalled "Bontoux cri
sis
tf
strongly impressed some of their leaders and partioularly M. Ger
main, head of the Credit Lyonnais, which was destined to become the
strongest Frenoh deposit bank. From then on their tendency was to
avoid partioipations in industrial corporations. Their aim was, in
principle, to develop only short-term Commercial banking operations.
In to build up a larger clientele of depositors ando'f
business customers, the leading deposit banks began vigorously to ex
pand their branch organization, which by 1913 consisted of around
2,OOObra.nches and agencies. Theirdepositsjumpe'd from about half
a billion francs during the years immediately following the ]'ranco
Prussia.n War and two billion at the end of the century, to more than
5.5 billion in 1913. Analysiso-f their assets before the first World
War shows- that nearly 50 per cent -consisted of- discounted bills and
about 40 per oentofloansand advances', of whioh almost half were
coyered bycollateral. The.non-guaranteed loans were mainly granted
to 'industrial or commeroial enterprises for aocommodation.
The investments proper (securities portfolio) amounted to only about
3- per cent of the total assets. Taking into acoount the re
disoount policy of the Bank of France, it oan be said that/the banks
were in a very liquid position, half of' their &ssets being' rediscount
able with the Central Bank.
'While the large deposit banks did not themselves build up large
investment portfolios,their Widespread network of branches made them
very-useful inmarketingcsecurity issues. This was especially' true
in the flotation of foreign securities in Franoe,which - as noted
above - was a prominent feature of Franoe's pre-World War financial
development. Foreign issues - government bonds and oorporateseour1
ties - were generally negotiated and underwritten by "banque d'affaires"
but distributed through the large deposit banks. From about the end I
l! The speculative outburst' of this time and the personality of Bontoux
inspi:red one of Zola' s noveIs : "L' It
- 6
of the last century a hostile attttude on the part of some sections of
the press and public opinion became evident toward what 'Were "considered
exce,ss ive flotations of foreign securities. A veritable' campaign a
gainst the banks developed,extending even to Parliament. The banks
were accused of an unpatriotic'attitude, arising from the opposition
of the financial world to "radical" French cabinets and to "revolution
ary" legislative proposals, such as the introduction of an income tax.
It was also charged that the banks favored foreign financing because
such issues were larger and more profitable to handle than those of the
smallerFI'endhcorporations. In defense of the banks it was argued,
first, that the floVJ of French funds abroad resulted from the French
balance of international payments, and secondly, that the banks merely
served - and did not create- the public demand, for foreign securities.
While this controversy is largely of historical interest, it serves to
indicate the economic aswel'l as the psychological atmosphere of French
banking before theflrst World War.
Although on the whole the large deposit banks were applying the
prlnciplesdf short-termcommercial'banking, they could not be put in
to the same classification as the English commercial l;lanks. Contrary
to the custom of the Englishltjoint stock banks
tf
, French large deposit
banks engaged a.lso - to some extent - in underwriting business. They'
combined, consequently, commercial banking with investment banking, or
least with some kinds of investment banking. 'But neither couid they be
put on the sanie footing as the German or the Belgian "mixed" banks..
They nO longer participated in the promotion of corporations
(or only in exceptional cases), nor did they entertain especially close
relationships with their business customers.
It should be added, however, that this general picture did not
apply equally to all large ban'ks. The Societe Generale in particular
did not strictly follow the same policy as the other establishments.
It ha.d important participations in some corporations, particu.larly in
South AInerica, so that a. part of its assets was in illiquid form. When
Waf' 1;>roke out in 1914 and a :run qf depositors occurred, a moratorium
,was pr9cla.imed ; deposits were paid out only in small amounts. It was
:rumored at the time that the moratorium was judged primarily
if not ,exclusively because of the frozen position of the Societe Gen
erale.
The development of other types of banks
Ranking naxtto the ."EtablisseIhen;ts de Credit" in French banking
were the so-called "banques d'affaires" (business banka) of which the
Credit Mobilierwas the prototype. Their primary function was, promot
ing and financing 11 and selling securities '
11
.AB is customary on 'the Continent andpa,rtiou1arly in French termi
nology" "indus'trial ,securities
tl
is used
herein abroad sense. It inclUdes railroa.ds, shipping; trading
corporations, etc.
- 7
(including government bonds) to the public. Although "banques d 'af
faires" is sometimes translated ",investment banks", there is no close
analogy d'affaires and investment banks in the
United states. The relationship of banks with industrialen
terprises was much closer tha.nthe correspondlngrelationship in the
United States; they participated actively in promoting new enterprises,
especially by aubscribing the original capital, and -they often kept a
permanent participation in the corporations established under their
leadership or witlltheir cdllaboration.
Predominant among these bustnessbanks were the Banque de Paris'
et des Pays :Ba.aestablished in 1871 and the Bangue.de lrUnionPa.ris
ierine established in 1904. Among' the chief founders of the Union
were some Protestant banking houses of the Banque. The .Credit
Mobilier, reorganized in 1871 after its 'resounding failure in 1867,
continued a rather uneventful existence until 1902 when, because.of
losses, it was again reorganized, it finally was with the
BangUe de l'Unionc;Parislenne in 1932. There were two or tl;1ree other
business. banks of. which only one merits a brief the Societe
Centrale des Banques de Province, a corporation established in 1904
by a group of oountry banks in order to participate in the financial
operatioD$ of the Parisian capital market.
The distinction between deposit banks and businesabanks was
not so sharp as would appear at first glance.. As was explained
ea.rlier, the Etablissem.ents de Credit oarried on some kinds of in
vestment banking; the SooieteG-enerale was even olassified
times with the banques d'affaires. On the other hand, the business
banks d'td. not entirely neglect comme.rcial banking. They held some
deposits a.ndmade some short-term loans, but these operations were
liInited'to a small number of customers. Af'ter the'first World'War ,
however, the banques d'affaires expanded their "comm.ercial"
opera.tions .
'Whereas the large deposit and business ba,nks were oentered in ..
the oapital, there were also a number of regional banks with special
spheres of influence in -the provinces. 'rheseoanka greatly: expanded
their' activi tles >in the last deoade of the Nirieteenth oentUry','an
era of -industrial expaIision in Franoe although a.t a more moderate
than in the United atatesa.nd Germany. AS the, large .de.pos ltbanks
and the 'bu.siness banks were oCOl1pied ohiefly with other fields of
activity, thefinanoing of new or expandlngindustrial enterprises
became largely the "busine'ss of'someregionalbariks. These bankS,
several of them relatively originated
as 100al banks in suoh important centers as Lille,Nanoy,!Jon,
; Marseille. They expanded in thefr res'peotfve regions by establishing
branches 1 resulting sometlmesfrom the a.bsorption of small local .
banks. lIhenu.mber of branohes amounted in some cases to 20 or;O.
In general the relatio:t1shipof the regional banks to industrial
enterprises was a relatively close dne,so!lietimesext6:b.ding to
-8
promoting and participating in new corporations. While the large de
posit banks pu.t the emphasis upon discounting short-term commercial
paper, the regional banks more often lent funq.s on "current account".
Such loans, generally unsecured,represented relatively illiquid as
sets. Some of these regional banks (partiClllarly the "Lorraine" group
at Nancy) could even be compared with the "mixed" type of banking such
as prevailed in Germany or Belgium.
.. Pre-emtnent among this group were: Bans.ue hivee-Lyon Marseille,
Bangue Marseillaise, Societe Lyonnaise, Societe Nanceienne, Banque Re
naul t & Co. (Nancy), Banque de Bordeaux, .etc.
Finally there were local banks, generally without branches and
confining their operations to their own community. The situation of
these small banking establishments was imperiled both by the expansion
of the large deposit banks and by the growth of the regional banks.
The "crisis" of local banks was a much discussed topic; while no evi:
dence is available concerning the decline in their number, certainly
their influence !apidly declined.
The flotation of securities was the field of banking activity
in whichamall local' banks were particularly unable to compete with
the large deposit banks. Taken individually they had. neither the neces
sary capital nor the organization, nor experience; hence the idea of
. forming an organization for common dealing in securities. In 1899 a
syndicate of provincial banks, was established, which was tra.naformed
in 1904 into a corporation under the name ., Societe Centrale des Banques
de Province. The original capital was only a few million francs. In
1911 the capital was increased to 50 million, of which one-fourth WaS
taken by the local banks and three-fourths were sold t9 investors as
nonvoting stock. The Societe devoted its whole attention to the flota
tion ofsecurities. While it was hoped that the company would finance
primarily French industrial corporations, in practice it like_ other
French banks - distributed mainly foreign securities.
.
Conclusion

During the last years preceding the first World War the "defects"
of the French banking organization were often discussed in different
publicationaandin some circles of Parliament. In 1911 the government
appointed an Commission for Banking Reform."
The principal "defect" of the system was. seen in the insufficiency
of long-term credit (generally called :industrial credit), particularly
for" small and medium-sized enterprises. It was contended that the
large deposit banks were interested only in short-term conttnerc1al loans,
that on the other hand large were able to ob
tain long-term funds by the issue Of bonds But, the argument ran,
smallerenterprises 'not strong enough to issue bonds which could be
listed on the stock Exchange", were handicapped in their expansion. The
example of some foreign banking systems (particularly the German) where
- 9 -
banks and industry were much more closely 00rmected than in France,
was often oited..
Different projeots for establishing special banks with the
baoking, of the Government were drawn up, particularly by the CQmmis
sionreferred to above. Aotually, they did not result in any -notable,
praotioal measure although'the Commissionts work led indirectly to
the 1917 law on popular banks.
II. Period of the War
The evolution of French currenoy and ,banking during 1914-1918
was entirely dominated by the financing of the war. The, major part
of the war expenses was covered by borrowing. The effeot of'the war
on the Frenohpublio debt can be judged from the following table:
PUbliodebt of Franoe
{in millions of francs)
Internal debt , July 31, lq14 Deoember 31, 1918
Perpetual and long-term ,
32,235 67,248
Short-term
1,951 56,546
Total internal 34,186 123,794
:Foreign debt
Politioal ' 23,832
Commeroial 6,766
Total fore ign

!
total
'
34,186 154,392
The larger part of the inorease in the inter.Q,al debt took plaoe
in the i.e. in Treasury bills and notes (prtmarily
theBons de la DefenEJe Nationale or B.D.N.) a part ofwhiohwere
sold to the Bank of Franoe. Theadvanoes of the, oentral bank to the
Government during the period 1914-18 amounted to 17.1 billion franos,
in addition to 3.5 billion whioh the Bank advanoed to f'orelgnGovern
ments (pr:r.mar1.lyRussia) under the guaranty of the FrenohGovernment.
The increa.se in the issue 'of bank notes was even larger, having risen
from 5.8 billion in rruly 1914 to 3.02 bil1ionin July
i
1918.1.!
The other 'Treasury bills and. notes were sold partly to the gen- ,
eral pUblic and Partly to oommeroial banks. These last put them in
l!Sinoe notes in denominations of 5,10 and 20
were to replaoe the ooins disappearing from oi:roulation.
-' 10
their "cormnercial portfolio'" together with commercia.l bills. It fol
lows that no precise figures concerning holdings of Treasury bills by
deposit bankE! are available. Yet the deposits of cotmnercial banks did
not increase markedly. In the 10 principal deposit banks, thedepos
its rose between the'end Of 1913 and the "end of 1918 from 6.8 to 9.5
billion francs.!.! Neither did the total amount of "commercial'port
folio
tt
rise very much. The banks invested in Treasury bills mainly,
the prooeeds resulting from the liquidation of commercial bills.
It will be seen that the war-time monetary expansion in France
resulted primarily from the eXPansion of the bank-note circulation; a
more moderate increase in deposits' followed. In England andinthe
United States the order was reversed; deposits expanded .first, bank
notecirOlllation increased later. demonstrates the
fundamental difference in the Ollrrency habits of the respective coun.
tries; the prevailing use of bank-notes in Franceaild of checks in
English-speaking countries.
,The Bank of France suspended the convertibility of its notes in
to gold or silver at the start of the war; the French franc consequent
ly became a "forced currencytt.gj Initially, however, the external (or
gold) value the franc, as shown by foreign exchange quotations rose
above par; ,in the United States, for example, it went" to about 21 cents
as compared with the 19.3 cent par. This temporary rise was attribut
able to, the recalling of French balances in foreign banks, to some
selling of foreign, se:curities, and to the' curtailment in purchases of
raw materials (of cotton for instance). But towards the end of 1914
the franc was under heavy 'pressure resulting mainly from French.orders
for ammu.hition and. raw materials (thedisappearanoe of the tourist traf
fic waaa.nother factor 'During 1915 the franc deprecia.ted; late in the
year it was quoted in New York at around 17 cents or over +0 per oent
below Par. Huge loans granted by Britain and later by the United States
were then used to main'tain this level. Indeed" from April 191T to JUly
1918 the franc was raised tq the "pegged" level of about 17-1/2 cents.
In the last months of 1918, with the approach of victory, the rate was
even increased to around 18.35 cents, although, this level proved unten
able when Allied support was withdrawn. '
The development of French banking in period, as mentioned
above, was dominated by the necessities of war financing. ' Yet some
banks Participated also in' the industrial ef:tortundertaken by France
. during The German occupation of the pr1nciPallndustria1 dis ...
triqts of France necessitated the establishment of new factories in the
unoceu.pied zone. Important progress was also,made in 'the electrifica
!J The corresponding figures tor the 4 leading deposit banks are 5.7
billion in'1913,and 7.1 billion in 1918., ' , , ,
gj The Frenohterm is "papler monnaiea colirs fo:rce"" or simply "pa
pier...monnaie" ,-- not to be confused_with ftm0Il11B.ie de pap1er", l:\
general term. for paper moneY.
- 11
tion of France by the development, of power to replace
the coal production lost to the enemy. An important contribution to
this industrial development was made by two new contenders for inclu
sion in list of large deposit banks, the BanqueNationale de
Credit and the Credit Commercial de France as well 'as by some of
regional banks.
III. The Inter-War Period
The depreciation and stabilization of the franc
The armistice and the treaty of peace did not terminate France's
financial difficulties, which were intensified for different reasons,
such as the disappearance of external aid, the resumption of political
strife, the necessities' of the reconst:ructton, etc. The budgetary de
ficits persisted and use was made again of the facilities of
the Bank of France. The advances of" the Bank to the state, which
reached 17.1 billion francs at the end of 1918, exceed.ed 38 billion by
the middle of 1926, when the monetary and financial crisis reached its
climax.
The loans ,from Allied countries were stopped in March 1919 and
the franc was' unpegged. From then on all adverse factors were able
to exert their full pressure on the franc. These factors were: the
unbalanced budget and the resulting monetary and.price inflation, the
adverse trade balance, and the speculative flight of capital from the
country.
During 1919 the precipitously'inworld markets,reach
ing the level of 9.2 at the end of the year, or just about half
its pegged value in the first half of the year. Its course was very
irregular in the following years. A .new 'low of Iittle more than 4
cents was reached early 1n 1924 as 'a result, of' a "bear" raid on the
franc by international The" tide Was turned with the aid
of a 100 million dollar loan by Morgan & Co. tothe:Ba.nk of France,
and. within a few weekathe, rate rose again above 6 cents. This re
.covery was short-11ved, however,' and in 1925-26, a fresh slump took the
rate to only 2 oents i;n July of the latter year.
Amidst intense political strife and financial panic, a government
of national union was formed by R. Poincare, thetorme:rPresident of
the Republlc. This government succeeded in stabilizing the budgetary
and monetari situation, and at the eDdof 1926 ,the excnange .value of
the franc was stabilized defactq at about 3.9cerits, or around dne
f1fth offts pre...;warvalue. Inl928 the stabilIzation was 100nsol1
dated by statute : a monetaryref6rm changed the status of the. French
currency. The ':fold content' of the franc,' which' since 1803 had been
3'22.,6 was reduc,ed to 65.5 m111,,1
g
rams, (In'll,othc,as,ea ,nine
tenths fine). The new franc ("franc Poinca.re') remained the basis of
French currency for about a decade- (December I 926-0ctober 1936)
- 12
The monetary regime thus introduoed was based 'on the gold bullion
standard. ITheoonvertibility of bank notes into ooins was -not re..,es
tablished, but the Bank of Franoe-was bound to sell gold bullion free
ly in amounts of about 15 kilograms, (the customary unit for trading
on the international bullion market). The Bank was required to main
tain a gold equal to 35 per oent of its notes and other demand
liabilities; the speoific limitations on the volume 'of the note issue
whioh previously had been a feature of French central banking were
abandoned. The nprofit" from the revaluation of the Bank's gold re
serve at the new rate.aoorued to'the state and was used to settle var
ious of its debts to the Bank.
Period of currency stabllity
In the years following the stabilization of the franc, the gold
reserve and foreign exchange holdings of the Bank of Franoe rose
ma'rkedly, largely' as a result of an inward oapital movement resulting
from the repatriation of Frenoh funds. When the internationalfinan
oial orisis of1929-31 ooourred,partioularly when EngJ,.and abandoned
the gold standard in September 1931,there was again a general break-,
down on the international exchanges. Many ourrenoies were in a vul
nerable position, but Franoe" with its show of finanoial strength, be
oame the most favored shelter for fugitive short-term oapital (tfhot
money"). The gold reserve of the Bank of Franoe reaohed 83 billion
franos (3-1/4 billion dollars) at,the,end of 1932 and in 1933 Franoe
became the baokbone of the so-called "gold blook", a group of oountries
oommitted to themaintenanoe of the gold value of their ourrenoies.
From apu.rely teohnioal point of view, as measured by the mag-:
nitude of the gold reserves, the monetary situation of Franoe appea:red
very strong in 1933-34. But at this time the.general eoonomic situa.
tion of the country was growing worse; the effects of the world eco
nomio situ.atton of the country was grOWing worse; the Qf ,the
world econo1!lic orisis were spreading. Frenoh exports, already hard,
hit by depression in foreign markets, were further handicapped by the
disparity between Frenoh prioes and those in ooUntries with depreoi
ating currencies. Inside the oountry, eoonomio aotivity was
by the uncertainty of the situation and the proape'ot of a'oontinuous
fall In prioes. In 1934 and,1935 the' Frenoh Government pursued a po
lioy of eoonomic "deflation" with a fall in prices as the primary goal.
Confidenoe in the franc began 'to weaken and Frenoh oapital ,began to
take flight abroad. Then in 1936, the rapId suooession' of social re
forms ,lntroduoedby the Front Populai;re still further inoreased the
disparity between Frenoh arid foreign prioes. Moreover the, Gover!1.'"n.ent
budget" was again unbalanced and recourse 'W1=lR had onoe more to the
faoilities of the Bank of France. IIiternalpolitical strife beoame
more bitter, the Front Populaire government 'being violently opposed by
oome sections of the population. As a result of these factors, the
flight of capital wa.s aooelerated. From Maroh 1935 through September
1936, the gold reberveof the Bank of Fl'anoe fall from 82 to 50 billion
franos ,'even tp.ough oertain fore ign loans. were ted by the
- 13
government during this period.
currency disorder "
Finally,onOct-ober 1,1936, after much agitation a.nd'discus
sion, the French 'decided to amend the monetary statute of
the country, and repeal the obligation of the Bank of France to sell
gold at a fixed price. The definition of the franc, first modified
in i928, was changed again: henceforth the franc was no longer to
represent a fixed of gold. Its exchange value was to 'be
itainedat a level "corresponding to a minimum of 43 mil1:tgraJIls and a
maximum of 49 milligrams of gold, nine-tenths fine (from 4.35 cents
to 4.96 cents U.S.1.!l.To stabilize the. currency lim
its, an EXchange stabilization Fund was established, to be managed by
the Bank Of France unde:ro the.direction of the Millister of
It was endowed with lObilllon of the i7 billion franc "profit- re
sulting from the revaluation of the gold reserve of the Bank of France
at the 49 milligram rate; therema.inlng .7 billion francs was again
used to redeem part of the Government i 8 debt to the Bank.
The economic and'financial situation did not improve; political
and social linrest persisted. The exchange rate on the franc was held
at the upper limit for only a'few months and in the Spring of 1937
dec'J,:ined toward the lower. The decree of June 30, 1937, again modi
fied the of the franc or rather abolished its definition
in termaof gold. The pre-1914 franc (or Germinal franc) and the
, Poincare franc had ,been rigidly fixed in terms of gold while the 1936
franc (the Auriol franc) has some elasticity. After June 30, 1937
the franc beciam.ea "floating" unit,. without any express relation to
gold. Ita value promptly fell on 'the 'from
about 40ents in June to 3.3 oents 'in Ootober ,1937. Meanwhile, in
JU,ly 1937 'the Bank qf Franoe revalued its gold at the 'rate of
the Auriol franc (43 milligrams of gold, nine-tenthS fine, equivalent
to 4.35 'cents' U.S.) and transferred the 7 billion franc l1profi t" to
the Government for use. by' a fund. regulating the market in Government
securities.
The eoonomiC and sooial di"ffioufties. of Franoewere intensified
by the rising internatio:aa.l politicai unrest. The flight of capital
seeking iIrnminity from economic and political inStability did not stop,
wp,ile hoarding of gold within ,theoqflntry als'o developed. The bud
getary defioit was inoreasing and the government was obliged to
row heaviJ.y from the Bank of Franoa. The interna.tional value ,of the
franc was still falling. 'In M8.Y1938the mBiieknown eo new
"retreat" ("rapti") in Its defense of the frano, announoing that
henoeforth: thepol.loy of the Exchange :Fund would be to prevent the ex
oharige rate on sterling from exceeding 179. franoa.'. Aotuallyfrom' that
time until the outbreak of the war, thesterling-frano 'rate fluctuated
narrowly between 176 and 179 to the pound sterling. During 1938 the
11 In 1934 the gold of the dollar ha.d 'been reduoed by 41 per cent.
- 14
puund - and the frano - depreoiated, vis-a-vis the dollar, but thisre
was -stable from JB.Illlary to August 1939. Du.riilg this latter
period', thefrano 'in the exohange market at about 2.65
o'orresponding to' a gold value' of 26.lmillfgrame {nine-tenths
fine ) par ' frano,: or less than one-twelfth of the gold value of the
franoin 1914. The rate adopted by the :Bank of France for the purpose
of valuing 1tsreserves was again not quite 'so low, having been fixed
in November 1938 at 27.5 milligrams of gold (nine-tenths fine). per
franc, oorresponding to nearly 2.8oents; the 31 billionfrano
the November revaluation was again applied against the
Bank's to the Government. .
In the' las't months of 1938 and in 1939 the flow of floati,ng
ternat1onalbalanoes was reversed and "hot money" flowed baok to
Franoe. return was attributable to several oauaes._ The lQw value
of the franc induoed many Frenoh holders of foreign currenoies to take
their' profits by repatriating their funds. There was also some re
of the internal political tension.
The fluctuations in.Frenoh gold reserves during the period from
September 1936 toOotober 1938 oannotbe asoertained
the holdings of the Exohange Stabilization Fund during this period
were not published A fIgure for the Fund's holdings on the la.tter
date has been given, however, indicating that total Ft'enohgold re
servesinthistwenty-flvemonth period had deolined by Boo million
dollars to the equivalent of 2,530.million dollars. In therfollowirig
. sevenmontha through May 1939, during whioh the Fund's holdings were
reported, over 500 million dollars of this loss was reoovered. No
SUbsequent data on the Fund's gold 1a available, but total Frenoh gold
reServes at the outbreak of th,e war may be at arouD.d.3bil
lion dQllars,of whioh n1.ne-tenths, valued at more than 97 billion
held by the Bank of Franoe.
The folloWing table shows the progressive devaluatlonof the
franc in terms .of gold as refleoted in the plaoed.by the
Bank of France upon its gold reserves. It has been noted in the text
that sinoe the Spring 'of 1937, the valuation the franc in
theinte:rna.tiona1 exchange market was oonsistently lower than. its for
mal gold value.' . . ,
Gold oontent Index of
-(:Ln nl1111grams) gold value of
nine-tenths f"ine the franc
(1914 100) III
Germinal :rr&no (pre-1914) .' . 322.6 100
franc 1926-0ctober 1936)
Auriol' fmnc.- upparlimit (Ootober 1936-J'u.ly 1931) 49.0 1'5.2
AUriol franc -"lower l11n1t(July 1937 - '
'. "November 1938) 43.0 13.3
LaS'bpre-war frano (November 1938-Augu.st 1-939)
8.5
- 15
Finally, to aid in interpretation of the banking,figu.res in the
inter-war period, the following table-shows the fluctuatiops iIl.-the
internal value'of the franc as measured by changes in the official in
dex of wholesale prices,: '
Index of . Index of domes- Index .of Index of domes..,
wholesale ticpurchasing tic purchasing
pri'ces power of franc prices poweroffran.c,
(annual averages '- July 1914 =100)
1918 '
346 ,28.9 1929 '
623
1919 364 27.5 1930 543
18:4
1920 520 19.2 1931 462
1921
353
28.3 1932 407 24.6
1922
334 29.9 1933 388
1923
1924
4a8
499
'23.4
20.0
1934
1935
366
347
27;
28.8
1925 .561 1936 405 24.7
1926
1927
71'8
630 .
13.9
15.9
1937
1938
56;
640

15.6 .
,
1928 6:30 [5.8
Banking expansion in the 1920's
Du.rtng the 'twentieafollowing a period of relative stagnation,
during the war, financial activities of all kinds flourished. The
ehiefIrianifestationsof these activities were: the 'increase in bank
ing' deposits, large flotat,ions -of Government and corporatesecuritles,
several waves of s'peculation on the Stock Exchanges, and the
foreign exchanget.ransactionsinvolved in. the frequent movement of
'short-term balances into and out of the country.
largelyerigenderedby the lnstabflityof
liferation not only, of banking instltutionaproper, but also of' finan
cial houB,ea'e.ud', corporations ofev8ry kind and ofndelyvarying
'1'h.e regularincrea,se in the number of 'banksaild in the a
mount of bank deposits persisted until 1929, as 'shown in thelfollowlng
table: '
Number!l 'TotalY Four "old" Two "new" Two busi All
of banks deposttsdeposit deposit ness banks others
banks banks
1913 132 9.6
57
0.3 0,.5 3.1
1921 182 33.1 13.7

1926 265 61.2
29.4
1929 271 90.6 "34.2 8.. 4 4.7 43.3
!.I Figures c01Teto the principal-ban\tins _,corporations. They are',based
on. private surveys. All small b8.nks aa' well as, the eavtngs banks
are excluded Deposit figure,s includetim.e depoe its.
- 16
As the table'shows, the 'total amount of depostts in 1929 was
about ten times the 1913 figure, 'while the franc had depreciated to
only one-fifth in. te:rms' of gold and about one-sixth in tertils of in
ternal purahas irig power. The real value of deposits had therefore
nearly doobled. 'The four oldUEtablissements de credit" were unable
to keep paoe, however, with the general trend; their share ,in'total
depositswa,s lower in 1929 th&n'in 1913, nptwithst@di:og a:n increase
in the number of their branches. This due to the ex
pansion of provincial banks and tne development of two new large de
posit banks whioh were in their infancy in 1913: the Bangue Nationals
de Credit and tb,e Credit Commercial 'de. France (see below).
, Two. stroilg trends dominated the evolution of French banking
dut-ing the' twenties: finap,cing the needs of the Treasury, and in
creased attention to credit. The finanoing of 'the Treasury
played a prominent part until 1926-27; in particular the la.rge deposit
banks were', induced to buy large of Treasury notes (Bons de 180
Defense Nationale or BDN). As pointed these notes did not
a's a separate item on the banks' balance sheets bqt were com
bined with oaD'.lIIl.ercial bills. Yet it is known that in the first half
of the 'twenties they sometimes formed by far the major part of the
"commeroial" portfolio of the large deposit 'banks. After the monetary
and finanoial'reforms of 1926-27 the amount of the Treasury notes held
by the banks fell considerably, to increase again in the 'thirties.
,CloserrelatioD.S with industry
Theseoond trend of the 'twenties 'was the increased attention
to lndu.f3trial oredit, which wa.s characteristic of the whole banking
system although particularly true ot the It was in
spired ohiefly by two developments: The expansion of eoonomic' activl'
ty in France, neoessitated by reoonstructio:n tas'ks andfacilita:ted by
new industrial opportunities (annexa.tion of the metallurgical district
of Lorraine, electrification, a,to.); a:nd the reduced soopefor foreign
investments _.
The attention to industrial oredit resulted in the
organization of many new financial crorporations, sometimes established
with the collaboration, or under tllE1 p3.trori.Et.geof the large deposit
banks and bus iness banks. aim of the.seco:rporations was to grant
, long-term industrial loans and to p:romote industrial enterprises in
Franoeand sometimes a.broad.. Some of co:rporatione reselIlbled the
graat' indUstrial and utiIityoompanies in teQ. Stat13e, but most
of themal.'raoengagad in investment baJlking(prombting, underwriting,
i.ssuing raeourities, ;etc.) and even in commeroial banking (deposits and
discoonts), at least fora restricted' clientele. Many of them were and
are often tlbusiness banks", ,although the term. is not always ap
propriate; of the.moet typical of this type are
briefly zed below '
A.number of thes,Q institutions, mostly affiliated with
-17
deposit 'banks, specialized in industrial credit. Already in 1919 the
Credit Lyonnais arid the Comptoir d'Escompte had established the Union
pour Ie Credit a. 1 'Industrie Nationale (UCINA) for granting medium
term industr.1al ,loans. The funds of the 'UClNA .were' obtained mainly by
issuing notes of 2 to 5 years maturity. In 1929 these banks estab
lished theOnmium Financier pour l'IndustrieNationale (OFlNA) for
long-term loansjthe funds of this institution 'Were derived largely
from the issuance of bonds with 25 to. 50 years 1 term; In 1928, the
Societe Generale in collaboration with certain industrailists estab
lished the' Sooiete Anonyme de Credit a l'Industrie Franoaise (CALIF);
in the year, the Credit du Nord established again in collabora
tion with industrialists {and with Belgian interests) the Union Ban
caire du Nord; and in 1929 the Credit Industriel and its affiliated
banks established the Union des Bangues Regionales pour Ie Credit In
..Q;ustriel.
A powerful ba.nk, the .!lIuon .des Mines, was eatablis1.led.
in 1923 by a group of coal-mining enterprises; later other industrial
interests (steel, chemicals) participated. The initia.l capital was
only 5mililon francs, was raised progressively to 270 mil
lion.' The oorporation became one of the strongest organizations of
French industry and controlled se:veral affiliated corporations, but
it suffered severe losses from the crisisef the 'thirties.
Another powerful institution organized for operations abroad,
wa.s the Union Euro eenne Industrielle et Financiers established in,
1920 by the group Schneider-Creusot (heavy industry and the Banque
de 1 'Union Parisienne. This is an "omnium'" transla.ted
"hold.ing company", but' presenting also some features of a "business"
bank. TheU'nion' acquired important participations in industrial
(chiefly metallurgical) and banking corporations in: Central and East
ern Europe (especially in Czechoslovakia,Poland, and Bulgaria) . The
shares of the Union became one of the "vedettea" (market leaders) of
the Paris stock Exchange.
Among other corporations established in the 'twenties, which
were more like hold.ing companies than bU81.neaS banke, wereisuch en
terprises as '{;he Banque Generale pour l'Inaus"&rle Eleotrlque ('esta:b
lis,ned by the Credlt Commercial de France and the Cie. Generale
d 'Eleotr1oite), the Union Finanoiere pour 1 'Industria Ele,otrique
(established by the Banque de Paris at d.es Pays-:B8.s, the iBelgi&"1
group ana. some others), the Cie. Francaiae. des Petroles,
'(Banque de Pays :Bas and some other), the Societe Franoa.iee at. Colo
niale (Banque de 1 'Union ParieienIie, Lazard Freree and sev
eral others.
Thetnoreased attention to industrial oredit foUnd further
expression in the expansion of regi opai banks, which had always had
olose oonnections with industrial corporat1ons. These banks,evi
denced their interest lnsuch oorpora.tions not so by acquiring
"partioipations" (i.e. large or controlling interests in industrial
enterprises) as by their lending policies; They established intimate
relations with industrial by lending them important amounts as,
more or less permanent 'Working capital (cf. the practice of German and
Belgian ftmixed" banks ). '
Two other events of the 'twenties are worth the
'establlshment in 1920 of a special bank for fo:reigntrade . (Banque Na
tionale pour Ie Commerce Exterieur) and, in 1929, of a spe
cial bank for aoceptances(Banque,Franeaised' Acceptations). The lat..
terinstitutionrepresented an attempt to make Paria a center of in
ternation acceptance business at a time when France possessed enormous
liquid funds, in francs as well as in foreign currencies. The bank
eXPanded its operations rapidly but was caught very S.OOIl by the finan
cialcrisis.
The banking crisis of the early thirties
The financial crisis of 1929-31 and the 'World
depression led to a very serious crisis in hencn banking. Its ex
tent may be judged by the figures shown' in the following table.:
Bank Deposits, 1929-19381/
Number Deposits
of ' (in billions of francs)
Banks
Total Four "old" Two "new" Two business All
deposit . deposit banks others
banks banks
1929 276 90.6 ;11-.2
,8.4
4.7 43.3
1931 226 38.2
3.',..
26.9
1935 187 54.9 27.6 4.9 20.1
1936 187 60.3 28 6
5.3 2.9 23.5
1937 '18T,
67&4 I
30.4' 6.4
3.5
i938 75.0 g 33.6. 784 307
30.0 gJ
1/ See note 11 on pe 16.
gjRough estimate
From 1929 to 193:5 total deposits held by the banks included in the
fell from 90.6 billion to 54.9 billion francs.' Itwl1l be noted
tha.t this time large deposit banks increased thelrproportion
e.tesharel holding over half of all deposita in 1935 as with
only three-eighthS in 1929.- The reglonaland local banks suffered es
pecially from the crieis. Altogether between the end of 1929 and the
- 19
end of' 1935, 486 banks failed and 126 wound up voluntarily.l.l Many
to write off an important part of their capital and
surplus Others were saved only-py merging with othe:r banks, general 0 .
ly with the help of some larger banks or with financia.L assistance
from the Treasury. A brief account may be given of some of the most
notorious 'banking failures, and of the intervention of the Government.
The first 'banking failure to gain Widespread attention occurred
on Novembel"" 1930 'vhen the Bangue Adam (ot Boulognesur mer) closed
its doora.1hia bank,folinded in 1784, had greatly expanded after'the
first World War by establishing branches and by absorbing some smaller
provincial banks. Eventually it had 167 branches scattered over 16
departments (chiefly in the West and Southwest).. At the end of 1929
the capital and reserves of the Bank amounted to 55 million ana. its
deposits to60o mill.ionfrancs.
About 1927, the notorious .fi:g.a.ncier and speculator, Oustria,
acquired working control of the bank by purohasinga.n imporljant snare
of its outstanding stock. The bank then engaged in granting large
loans to various industrial corporations in industrial
participa.tions. During the crisis of 1929-30, part of its assets -oe
came vlorthless ;besides, Oustric himself had. borrowed la.rge amounts
from the bank to finance his speculative opel'"a.tions on the Paris
stock Exahange. When in October 193COustric' s own private bank (the
Banque .ou.stric) collapsed,the Banque Adam was a.lso obliged to close
doWDo .
In of the extended network of branches o'tmed by the bank
and "the Largenu.mber of depositors, the Government called upon the
banking fraternity to "salvage" the institution. A syndicate was
formed by the Bank of France, the large Etablissementsde .and
some regionalbanka, withou.t the. financial interventton of the
Government. The syndicate formsd a management company
(Societe de Gerance) to take.ovarthe administration of the bank.\lu
til.a successor corporation (Societe Nouvelle de Ia BanqJl,6/Ade.m)
could be .fofmed. The' cap!tal and reserves of theform.er were
entirely lost. The extent of the incurred by the membereof
theSyDdioate is not lmoTm. gJ .
The failure of t!le Banque Oustricsoon broug!J.t another even more
important bank into difficulties, the Banque d'alsace et de Lorraine.
This bank had been established at Strasbourg in 1871 to
handle French interests in the provinces annexed after the
France.-Pru.ss ian War. Afte:cthe first vIorld War, v1henAlaace .anq. Lor
raine were resto:redto France; TJIebank expanded outside
prov:inces.. At the end of 1929, tts capi and reserves amounted to
11 Most of these banks were small organizations not included in the
- table.
gl In 1937 the new J3aIlqile Adam was merged with the B.N.C.I.
- 20
165 million and its deposits to 1.2 billion francs. The notorious
Oustric also acquired an important interest in this bank and caused it
to grant loans to' his enterprises. At the end of 1930, ,in dOIinection
with the failure of OUstric and other banking difficulties, a run of
depositors on the bank developed.
The bank requested the assistance of other banks, which was de
nied. The Government, after requAsted the Bank of France to
grant special facilities to the pank for its requirements,
decided to intervene itself in January 1931. 1.1 It guaranteed the lia-'
bilities of the bank - after the directors had contributed 20 million
francs and placed the liquidation of its a.esets in the hands of a
special commissioner of the Treasury. Tb:e bank's branches were taken
over by the provincial banks belonging to tne Credit Indu'8triet group.
As a result of the Government guarantee, the Treasury paid out 910
million francs of which 700 million were a net 10s8.
The banking failure which attracted the most widespread attention
and whose "salvage" bythe Government provoked the most active d,is-,
cussions, occurred in September 1931, involving the Banque Nationale
de Credit (B.N.C .. ) This bank, established only in 1913 to take over
the French branches of an Alsatian bank then in German'territory, be
came the most enterprising panking institution in France during the
World We.!' and subsequently. It established connections with many in
dustrial 'corporations and developed a widespread ,network of branches
and of which it had 750 in 1929. It also absorbed a great
number of local and regional banks, including in 1930 even its parent
instituti o:n. , theComptoir d 'Escompte de Mulhouse At the of 1929
its capital and reserves stood at 400 million and deposits at' 5.1' bil
lion francs. The bank was fourth among the Etablissements de cred1t,
outranked oniy by the Credit Lyonnais, Comptoir d'Escompte, andSoci
ete Generale.
The crisis of 1929-30 gravely affected the position of the BoN.C.
rts most vulnerable point was its intimate connection with
toir a sort of business bank,the managing director of
which was President of the B.N.C. 'ilie B.NoC" had extended loans to
the Comptoir amounting finally to 322 million france. In the Fall of
,1930, in connection with the general the B.N.C. suffere,d a
run of depositors who withdrew about 800 million francs. 'The Govern
ment induced the Bank of Fra..ncetogrant special rediscounting facili
ties fo'r600 m.illion francs which enabled the B.N.C. to survive the
run. But in new run when the Comptqir
Lyon-Allemand failed. The Government felt that the closing of the
bank would be a national catastrophe: theE.N.C. had2
1
I-T,OOO deposi
tors and 4o,000'debtorso The failure of the bank probably have
1./ Political considerations no doubt play-eda role in this decision;
the fact that most 'of the bank's depositors were in reoently-re
stored territory meant tha't its failure would have beenparticu
larly damaging :to French prestige",
- 21
led to a general panic and large withdrawals from other banks. Conse
q.uently the Government again adopted the procedure followed year
earlier in the case of the Banque d'Alsa.ce et de Lorraine.
The Government guaranteed a1lliabilitles,of the bank and took
over the assets" which were to be managed by of the
Bank of France. The Government a contl"ibution of 20 mil
, lion franos from the directors of the B.N.C.; also the Bank of France
and a number, of other leading contributed 200 milliop franos.
Altogether the,"saJ.vage11 of the B. NC.' seems to have cost the Govern
ment more than 2 billion francs A new corporation, the Banque Na
tionale pOllr Ie Commerce et 0' Industrie (B.N.C .I.)' was established,
which took over the organization and clientele of the former bank.
When Parliament was called to approve the aotion taken by the Govern
ment, oonsiderab1e opposition developed. In partiou1ar, the "left"
oritioized the Government for not having taken'over control of the
institut,ion. However, the Government's aotion was finally sustai;ned.
During the banking cri.sis of the early 'thirties, a number of
other banks failed, many were absorbed by'stronger institutions, and
same, while remaining independent, had to write offmuch of their
oapita1 and reserves .1/ Arlother case of Government intervention
arose in connection with the threatened failure of .the Banq.ue
Franoaise d 'Afriq.ue. In this case , the 'Government requested the
Banque de 1 'Afrique, Oocidentale Franoafse(the issue bank for :French'
West Africa) to grant speoial rediscount facilities ,to the endan
gered bank. The Government guaranteed to the :l.ssue bank that the
Government would cover any eventua1'deficienoy in its assets result
ing from these operatioriB. '
By the middle of the 'thirties the banking orisis had been
passed: the weak establishments had beeneliminatedor reorganized.
As a result of the disappearance of many banks or of their pass irig
under the oontro1 of larger institutions"the.. Frenchbanking,organi-'
zation had become' much more centra1izea than in the late' 'twenties.
:Renewed banking-expansion'in the late 'thirties
, In the second half of'the 'thirties de'poai ts once more expanded
rapidly but in very-unhealthy circumstances (see table on p.19). , The
increase of deposits was not attributable to ,a growth in economic ac
, tivity;inatead it resulted frbm an inflationary expansion of cur
rency. From the end of 1935 to the end of 1938 the total amount of
deposits in French banks rose from 55 billion to probablysome,75bil
lion franos. During, the same pertod, ,the noteiasue of 'the Bank ,qf
Franoe jumped from 81,.1 billion francs to llO.9bil1ion francs,. At
1./ In 1934
,
for ,example, the Banque de'l'UnionParisienne wrote off
rasen-esof 135 francs and reduoed its capital from 300
million to 100 million francs; 100 million francs of new capital
was then issued.
- 22
thesam.e time the franc lost more than half of its gold value" the
. index of wholesale prioes almost doubled and the index of retail
prioes rose by more 'than 50 per oent. Thus the inorease of depoe its
'. was partly an illusory phenomenon resulting from the depreoiation of
the' frano. Moreover, about the m1'ddle of the 'thirties, many
mersbeganto oonvert their frano deposits into foreign ,ourrencY' de
. posits (ohiefly in U.S. dollars); oonsequently, after October 1936,
.ea.oh fall in the exoharige value of the fran0 resulted in an automatio
'lnorease 1nthe franoamount of these deposits.
:Bankinsoperations in this period were Oonduoted1.1nder particu
larlyunsettled oondi tions. ,The.. most d1sturbiIlg faotor'wastheirreg
ular movement of international $hort-term balanoes r generally outwa.rd.,
but also - partioularlY' at the en.d of the .. in' an inward. direo
tion. J\s a result batik,deposits often fluotuated Widely within a.-
brief period, as is illustrated in .the folloWiXlg table:
Deposits of Three Largest Deposit Banke
(In billions of franos)
End of
1.937
May
1938
September
1938
'End of
1938
Credi t lJonna1s
Sooiete Generale
d'Eeoompte


177
13.0
10.,
8.6
10.4

7.4
12.9,
10.0
8.6
Total 28.2 32.1 26.0
31.5
Chanses in 1936 in oontroland operat'1otls of Bank of France
The period of ,political -instability in t. 'thirties brough'tthe
,Front power in 1936,whioh' amo:cgits va.riolis
i
sooial and
:finanoial; reforms'introduoed radical' ohanges in the "oontroland' ope'r
ations of the Bank o,fFranoe. The "speoial s1snifloanoeof' ,these
ohanges for 'the Frenoh 'banking system' wa's' that the sreatprivate bank
ing houses lo's't thedominanoe, over the oentral _'institution' wh!ohthey
had'so loi3g malntained. Pub.tic hoet111ty.to the,oontrol of the Bank
by repr.esen,tins . 'the 200 'h.. ol<iers(the "200 .fatti1.
lies"} had been aggravated by the :Ba.nk's1ntransl,senoe in the matter
o,f ass1stitl8 the Government's finanoing program in 193'4-35." . Al.though
the reform 1936. gave 'the' Gove,rnment 'oontrol over theB8.nk' s
ad.m1n1stration,it'made no 'ohangs:t.nthe pr':tvate' owners'h1pof '1ts
oapital . The annual meeting '. was opened'. ,to all' sharehold.ers o'f'.Frenoh
nationalitr,eaoh having onli pne vote regardless 'num.ber of
shares 'I'hismeeting was to eieottwo, members of the
Counoil, :J10W enlarged from to twentymembers1naddlt1on,to
the 'GoTernor, and threeaud1tors. 'Of the'lie::' '
main1:ms e1ihteen oouno1llors,' represented six publioflnancial
1nst,itut1ons and. three Governm.ent ministries and another nine,' of
- 2;
whom six were appointed by the Government, represente'd various organi
zations of capital, "labor, and, consumers'.
As a mea.ns 'of broadening themarket'forGovernment paper, the., new
law required the Bank to rediscount Treasury bills. Formerly the law
had specifieddiscounting'of commercial only but the Bank had at
rediscounted small a.:m.ounts of short Treasury bills.
The Government's financing dlfficulties inI934-35, when an efflux of
oapital was in 'progress and the Treasury had to' obtain funds from the
short-term mone'y market, 'pointed to the need of unlimited rediscount
of Treasury-bills of any mat:urity. The Bank resisted this course,
whiob it considered a step toward inflation, but tnauguarated anew
type of advances, for 30 days or less, on short and medium term Gbvern
ment paper. This had little effect on the sale of Treasury issues.
The Popular Front victory in 1936 enabled the Govemment to overrule
Bank. Under the
i
new la'Wfor the Bank of hance, all bills of the
floating debt reaching maturity within, a ma.xiImlm ,of three months had
to be aocepted for rediscount wi thout 11mit. Direct discounts by the
Treasury were still barred, however; this limitation was designed to
, prevent direct inflationary financ:Jng"
The ,Government fa needs, however"oalled for direot financing in
large volume to supplement the ," sales of Treaen;l.l:'y and other pUblic '
securities in the money provision was'ina.de in 1936 for tem
porary non-interest-bearingadva.n.cesta the Government totaling 24
billion,franos, of which 14 billion representedinerelya repayment of
mat1lringbl1ls of the Treaaury and publiC agencies held in the ]38.nk's
rediscount portfolio. The remaininglO.billion constituted newft
nanoing. The 1im1t of 'temp'orari advances were Increasedthree times
,within the next two years and. the total outstanding reached 52 billion
.francs'in A ,further reva1uat1on of the Bank's gold
stooklIi that month provided a. profit ,with 'Whioh part of, the temporary
advanoes were repaid; and the remainder 'was consolldB.teCi' in a s-ingle
item of 20.6 billion. At the' same tlme the permanent' advance to the
state set up in 1928 wa.s increased from :;.2 billion' 'francs, to 10 bil
lion. At the end. 'of AUgust 1939, in Mdition to 'nearly 100 billion
francs ingold, the :Bank held assets va.1ued 69.1 bil1iqnfranos, of
whiah 3'0.6 'billion represented permanent and temporary advanoesto the
Govermnento
/
Growth of 'public banking institutions in the inter-war period
Another notable feature of the inter-war period was the expa.nsion
of' pu.blic and semi-pu.blfcoredit institutions. ' The Caisse des Depots
, at COnSignations, which managed the funds of the savings oo.llks and of
different government 'oftioes', beoame one of the largestfinanoial in
stitutions in the world. The Credit: Natlorial, which was es,tablishedto
finanoe post'-war reconstrUction, ,became a large organization forln
austrial loans., The people 'sbanks' 'and the, agriCultUral: 'oredit insti
tutions greatly' $*panded, mainly thanks 'to subventions and other faci
lities granted by-the State.. The Postal Savings Bank ,and the' Postal '
- 24
Checking Office also attracted large funds. On the whole , the amount
of funds managed by the "public sector" became larger than the funds
managed by those in the "private sector" of the banking business. The
competi tionofpublic banks and particularly of savings banks was the
subject of many complaints among ,"ordinary" banks.
------
CIVIL AFFAIBS HANDBOOK
on
FRANCE
Section Five
on
MONEY AND BANKING

- - - -- - --
- - - - _.
PAR T B
A clear picture of the elements in the
credit system and their various interrelations'
can best be obtained from a study of the pre-war
position. This system has been maintained in all
ofttsessenti8,l features, altb,ough its
tionby the occupation authorities ba.sthreatetied
to destroy its equilibrium. It is characterized
by a greatdiveraity of institutigns with consid
erablespecialization qf function; at the same
.time there ia a marked centralization of power in
the hands of important Frenoh banking' families.
- 25
B. MONE-y AND CREDIT INSTITUTIONS IN 1939
I. The Bank of France
The Bank of France was the central bank of the country, having
the exclusive note issue privilege and providing the ultimate source
of credit for the whole banking system.
structure and
The Bank of France was formally a privatB corporation owned by
some 43,000 stockholders. It had a capital of 182,500,000 francs
divided int:.o 182,500 registered ahares of 1,000 francs each. Of the
43,000 shareholders, 36,700 held one to five shares each, or a total
of about 72,000 shares. Data on the largest holdings, furnished by ,
the Bank in summary form, show that blocks of 51 shares and over 'were
held by 256 owners; the size of individUal holdings is not indicated.
The large blocks of shares controlled by the great banking houses-
Hottinguer, Mallet, Mir-abaud, de Neuflize, Rothschild and Vernes-
which secured their representation on the General Council of the Bank
before the reforms of 1936 were presumably still intact in 1938-1939.
The General Meeting of, shareholders was held annually in January.
All of French nationality were admitted to the meeting
and Were entitled to one vote each, regardless of the number of shares
held. The shareholders have only a limited influence over the Bank
since. the reform. of' 1936 which the Government control over the
management of the institution. Formerly 12 regents, a majority of the
voting membership of the General Council which administered the Bank,
were elected by a General Meeting com;posed, of the 200 largest share
holders'. Under the decree of August 1936, the shareholders named only
5 out of 26 members of the General Council, 18 being named by the Gov
ernment, and, 3 by independent groups.
The titles of the members of this body with particulars of their
selection appointment were as follows: .
Title Me'thod of Selection
Governor Appointed by
President of Republic
First Vic'e -Governor
If If tf
Second Vice-Governor
tI tf' "
counoiilors (20 in all):
Group I, 2 Elected"b.Y shareholders of Bank of '
France
Group II - 1 Appointed by National Economic Council
from among its'vice-presidents
- 27
The Governor of the Bank was required to take oath before the
President of the Republic that he would faithfully administer the
Bank in conformity with the, law. The offices of the Governor and
Vice-Governors were full-time positions . Their salaries were fixed
by law at the' equivalent of those of the Vice-President and section
pre'sidents, respectively, of the Council of State; allowances for
expenses were fixed by the General Council. To insure the inde
pendence of Governors and Vice-Governors after retirement, they
continued to receive full salaries for three years, during which
period they were prohibited from holding any public office or from
participating in private enterprise, with or without compensation.
The term of office of the Governor and Vice-Governors was subject
to the pleasure of the Government, the record length having been
twenty-two years. M. Pierre Fournier, appointed Governor in
1937, 'held office until September 1940; formerly &n ,of the
Administration des Finances he had served the Bank as
first and second Vice-Governor in the period 1929 to 1937. The two
Vice-Governors in 1939, MM. de Boisanger and Bizet, were also former
officials df the Administration des Finances. Upon the death of
M. Bizot early in Septe1l'.ber 1939 his post-as secondVice";Governor
was filled by the appointment of M. Jacques Rueff. M. Rueff., as
Director of the Mouvement General des Fonds had been a Councillor
of the:Bank ex officio since November 1936.
The offices of councillors and auditors were not full-time posi
tions, and these officers received only attendance fees for their
presence at meetings. They were elected or appointed for termS of
threeyeara, except for the ex-officio councillors; the terms of the
3 auditors and 9 of the councillors were rotated so that only one
third of this group retired each year. The two councillors elected
by the General ,Meeting, ,and th,'e aUdi,tors, w,ere,' "requi:r;oed _to hold
shares of the Bank during their term of office. y ,
The Bank had extended its services widely throughout hance.
The total of 660 establ1ahm.entsin 656 ,different "places bancables"
included the head office and eighteen banking offices in Paris and
its Buburhsand 641 other offices. The establishments other than
the head office were of three types. Branches (succursales-) had
an organization corresponding to that of the head office, and Were
administered under,responsfble local management.", Agencies (bureaux
auxiliaires) and connecte,dtewns (.n1.lles reattaches) were the less
inq>ortant esta.bli.shm.ents; iIi the latter, service was furnished only
on certain days' of the month for 'collection of bills, etc. The head
office employed 1,800 persons in December 1938 and the branches and
agencies' 2,700. Of the gross .operating earnings in 1938, about 55
per cent was derived from business of the head office and the re
mainc.ler that of, qthers. Approval of the Minis'ter of Finance
was required for the establishment or olosing of branches ana agencies.
1/ Am.en.dments Nove.mber 24, 1940,made various changes affecting
'. principally the general of shareholders' and the General Council.
28
Dividends were tWice a year and a minimum. rate of 6 per
cent semi-annually on the 1000-franc share was assured; if necessary
by drafts upon reserves. Actually in the ten years 1929-1938 earnings
provided dividents 398frans per share in
year of 1930 and as low as 119 in the fi+st of 1932. The
resulting annual returns, after deductions for coupon taxes, amounted
to 620 francs per share for 1930 and 200 for 1932. When dividends .
for the yeax exceeded 500 francs per share, after all tax deductions,
the Bank was required to pay to the state an amount equal to the
total excess payments made to shareholders. ,In 1938 the elividend,
before tax, totaled 320 francs; ded.uctions of the coupon tax on' regis
,tered securities left 8r net divident of 235 francs paid to legal
persons and 265 francs/to individuals. The price of the Bank's shares
i
Il
1938 ranged between 9,740 frans and 5,400; on .the mean value of
7,570 francs, shares held by an individual yielded.a return of about
3-1/2 per cent after tax. .
Note issue and currency circulation
The c'irculation of the" notes of the' Bank of France on December 8,
1938, amounted to 108.8 billion francs, or about 2,600 francs per
capita. At 2.9 cents per the average rate of exchange for the
year, the per capita average' was equivalent to about $75.00 - a high
fJgure in comparison with the corresponding average of $50.00 in cir
culation in, the United states in 1938. Although notes of the largest
denominations formed nearly 60 per cent of the French circulation
(64.6 billion francs out of 108.8 billion), the extent of hoardirig is.
difficult to estimate in'view of the general use of currency ,rather
than checks for business .purposes. Currency immobilized in hoards
may have amounted to as muchas.40 billion francs at the end of
1938. The distribution of note circulation by denominations as of
December 8,'1938, is shoWIl in the following table:
Notes of the Bank of France
'Outs"tanding'onDecember 18, 1938
Denomination
( infrancrs")
Number of
notes
Total value
(in francs)
5
10
.20
50
100
500
1,000
5,000
15,185,424
5,165,821
89
4
,0
2
9
69,603J510
283 ,200j569
. 24,449,045
62,490,581
423,640
75,9
2
7,120
51 ,658,210
17,880,580
3,480,175,950
28,320,056,900
12,224,522 ,500
62,490,581)000
?,118,200,OOO
461,412,628 108,779,002,260
- 29
From Ju..118 1928 until September 1,1939, Bank was required to
maintain a :roeserve 1/ in gold bullion and gold coin equal to ,at least
35 per cent of its notes in circulation and its other sight liabilities.
The Bank was, free to 'keep the gold reserve at'home or abroad, at'its
option, since no legal provision governed this point; no information
was given by the Bank as to the actual location of its gold.
The published ratio of gold to demand liabilities (including notes)
fell below 40,per cent in Fall of 1938; however, it was restored to
over 60 per cent by the revaluation of the Bank's gold stock on November
12,1938. In April 1939 and again in July transfers of made
from the stabilization Fund to the Bank - 5 billion francs on each oc
casion - bringing the gold reserve to 97.3 billion at the outbreak of
war, or 59 per cent of total demand liabilities.
The Batik's note issue privilege'was renewed in December 1918 to
continue until December 31,' 1945. So long as this privilege is in ef
fect, the Bank is required to make various payments and grants to the
S;tate and perform c,ertain gratuitous services' as fiscal agent. It is
required to invest a part of its capital and reserve (surplus) in
Government rentes. It had to maintain a non-interest-bearing loanoof
10 billion francs to the state, which pays the Bank a commission of
1/2 of 1 per cent annually for expenses. The temporarynon-interest
bearing advance of 20.6 francs is discussed on page 41.
Other payments to the state were as follows:
1. sta.ni;p tax on note circulation at rate of 15 centimes per
1,000 francs on issue corresponding to productive commercial
operations (such as discounts, loans, and advances); at eo
centimes per 1,000 francs on remaining circulation.
2. An amount equal to distribution of dividends above 500
francs per share free of tax.
3. A royalty (redevance), not leas than 2;000,000 francs
annually, calculated by a appli,ed to
the produc,tive circulation (defined under 1 above) j' this
royalty increased with increased in the discount rate up
to 11- 1/2 per cent; surtaj(es applied as circulation rose.
4. Additional payments out of earnings derived from discounts
at rates higher than 5 per cent.
5. Payment of unpresented balance of certain types of notes
called in from circulation.
1/ This 'reserve ("encaisse") should be distinguished from the "reserves
- inobilieres legales" and "reserve immobiliere" which form part of
surplus.
- 30
, Metallic in circulation consisted of about 3 billion francs
in silver and a somewhat smaller amount in coins of nickel and'various
alloys. Under the new currency regime following thenionetary reform'
of 1928 the limit of issue of silver wasdixed at.3.5 billion francs,
of which about 3.-3 billion had been coined in the years 1929-1938.
This 'was inte:q.ded to replace the notes 5, 10, and 20 francs issued
by the Bank until '1934 but nearly 150 million francs"of these small
notes remained outstanding at the close of 1938. The following
shows the principal coiils which were in circulation in France, with
some descriptive data.
Demonination Metal or alloy Weight Fineness Limit -of legal
20 francs Silver
in grams
. 20
0.680
tender power
'250 francs in
,private trans
actions
"
II It
10 Silver 10
5
tf
Nickel 12 1.000 50 francs in
private trans
actions
,II II It
5
'lly
6
2
"
Aluminum-bronze
8
"
(copper 91.,
aluminum 9)
tf It
1 4 "
50
centimes
ff
2
"
25 10 francs
"
5
(copper 75,
nickel 25)
10

It
"
5
if
"
2
Other Operations of the Bank of France
The authorized operations of the Bank of France were carefully
laid down. in law and statutes. Its principal functions,aslde from
the note is-sue, were:
1. Transactions- in gold
2. Discoilntbperatibns
3. Advances on Government oblications aild (s'pacified) trans
ferable securitiese
44, Permanent advances to the state.
!I Temporary issue
- 31
Various other functions. may be listed as follows:.
Gratuitous services to the Treasury:
Maintenance of Treasury account on Bank s books.
-Cashing coupons onFrench Government securities.
Marketing these securities at request of Minlster of Finance.
Handling of payments to and withdrawals from Treasu.ryac
count; cashing of checks payable to the TreasUry and to"
the excise offices; collec,tion of drafts payable to the
Treasury for, taxes, etc.; settlement, through transfers
between accounts of payment orders drawn by Government
authorities.
to foreign banks of issue
Bank may operatecurreny accounts for foreign banks of issue,
may and short-term securities for the ac
count of such banks, and upon request may rediscoIDlt these
bills and securities.
of funds in current
Bank mEiy receive funds on deposit in current account in the.'
name of indiViduals, corporations, and public establish':
menta and make payments from these ae-counts.
Collection of bills and checks:
Bank collects bills which are transmitted to it and which
are payable at any place where it maintains banking
servioe (place bancable); bank cashes without charge,
for all its customers having accounts, crossed checks
on places bancables and which can be cleared
through a clearing house.
Safekeeplngservice:
Bank receives securities and gold and silver bullion and
coin for safekeeping and performs certain services
for the owners ..
Open Market powers:
The purchase and sale of bans de la Caisse autonome
d'amortissement (non-lnterest-bearine; obligations of
the Autonomous Fund fo!" Amortization of Public Debt);
purchase and aale on open market of negotiable ahort
term public'seourities and priva.te bills eligible for
discount (law of June 17,1938).
32 ,
These powersE3.ndfunctions of the bank, to be discussed late!' in
greater detail, were administered as follows: As defined in the law,
the General Council included the Governor, the two Vice-Governors, the
twenty councillors, and the three auditors, the latter attending with
out vote,. The Governor's approva).. was required for all discounts of
bills but they had to be proposed 'by the ,General Courtcil. The Gov
ernor and dismissed the officers ("agents!') of the Bank, and
signed in the Bank's name all contrEicts and agreements. As presiding
officer or' the General Council he submitted the Bank's Annual Report
to the, Finally,' he was responsible for complying with
the laws and statutes of the Bank and carrying out decisions of the
General Council. The assisted the Governor, deputized
for him in case of absence etc., and performed duties assigned by him.
The General Council supervised all departments of the Bank and
was kept informed of all its business. Most imPortant was its author- '
ityover the discount'operations of the Bank; it determined the amounts
to be employed in discoUnts, fixed the discount rates, deter.mj,ne'd the
limit of maturities, and selected the bills to be taken for discount.
/
) S i milarly It decided and executed policy with respect to advances. In
the internal administration of the Bank it exercised nUInerous powers
including the investment ,of the Bank's reserve theprep-'
of the balance sheet, and the declaration ofthe\ divident.
Pursuant to an authorization g:roanted in 1936, the Council set up a
permanent broad delegated powers. T4e committee in
.cluded the Governor, the Vice-Governors and four COur;lcillore, one
chosen by the M1nister of Finance from among the ex officio members
and tbr'ee appointed by the General Council e
other arms of the General Council were the discount committee and
the committee of, control (inspectiori and auditing). The discount com
mittee was a small body of' meeting daily and serv
ing for periods of' 8 days in rotation. It iIicTuded of .:the
General Council, and of twelve shareholders engaged in
business in Paria, entitled the discount council. The committee exam
ined paper offered for discount and selected that which meets the
Bank t a requirements . '
The auditors exercised general surveillance over all aotivities
of' the Eankandcouldpresent to the 6eneral Council
althoUgh they could not vote. They had aocasa' to all accounts of the
Bank" includ.1.rl8, the portfolio, cash funds, and registers. A report
of l:b,eirin,spection 'Was ma.de annually to the General Meeting of share
holders, whose interests' they were Bupposed to
Discounts and advances
OJ."'ig1nally the chief function of the :Bank was the direct discount
of oommercial 'billsfqr individuals, andcoInmerc'1al enterprises' (flaIl,
persona of. known solvency"). Since therlse of' the graat oommercial
banka, t1;Lat type of credit had been superseQ.-ed by rediscounts, of 'such
- 33
bills for bankers .. The requirement of three names, as compared with
two na.meson bills disco'unted by commercial banks, gave an advantage
to the latter in competing for the discount business of the small'
4'
B
dea-rofJ:D, or' artisan. Nevertheless, the Bank of France continued to, '
dlscount directly a,considerable number of ,pills for very small amounts.
In 1935,. the year for which this .inforIrlation has been reported,
one-fifth of the number of ,bills discounted (or.rediscounted) was for
amounts-of' 5 to ,lOa francs;' 4-1/2 ndllion bills out of'the total of
about 6 ,million discounted 'in 1935 were for amounts not exceeding 1000
franca. NQ distinction was made in the Bank I s balance sheet between
direct discounts and rediscounts.
Redi.s.count facilities were used chiefly by the smaller banks as
the largerb.a.nks formed a rival group which was unwilliD.g, on grounds
of prestige, to resort to the Bank of France and reluctant to reveal
the affairs' of its customers to the central institution. Such caution'
may attimea have been necessary, as the efforts of theBank,espe
cially of its branches, to draw off the business of other institutions
received conaiderable attention from the Commission of Inquiry set up
Parlia.m.entin 1931 to investigate the oustric affair. (see Ohapter
All: .
Spacial priviLeges of discount for billa bearing only two elgna
ture'a' were allowed in certain cases, but no separate, item on the .
balance sheet distinguished 'such bills. A aim was to favor
'agrioult:ural interests. The following exceptIons from the' rule, of 3
provided.:
1. Bona ride commercial bills accompanied by approved col- '
lateral, su;ch as stock of the Bank of France, bills of
authorities or securities on which is
ized to 1l!Eike-advances, receipts for merchandise
stored in warehouses.
2 . \ Warrants (warehouse receipts) of various types
agricultural warrants ana. those representingwheat.'held bya
ooopeI'ative; also other 'bills creat'ed by wheat cooperatives,
discounted byspecifiedagricuitural credit agencies, as
desoribed law of August 15,- 1936.' (No oollateral
refl1U:red).
payable abroad and in French colonies are admitted to dis
count "in of French industry and export trade" under
conditi.ona pre-soribed,bytheGeneralOounc:l1.
The requirement that the' Bank should rediscount all bills' of the
Govern;ment t B'floating, reaching maturityin a maximum of three
months w8.sest&biishedbythe law ofJuly '24, 1936; enact'ed under tp.e
:Blum Gove:tonment(see'Ohapter A). Before that: the :Bank "had re- .
dlsoounte9,short-term Treasury- b111son a small scale, althoUgh not
- 34
'required by law to, do so. 'To avoid inflationary use of this facility,
to which the Bank objected, the law prohibited such discounts "for the
bertefit of' the Treasury"; the bills had to be offered for rediscount'
by bona fide holders market.
The Bank granted to certain Paris banks (beginning in 1929) the
privilege of rediscounting bankers' acceptances of the types prescribed
by law and of repurchaslng them within a week or les8. This, type of
accommodation, known as "'Vente a remere", enabled/these instftutions to
obtain funds from the Bank for very short periods without permitting the
paper of their customers to get into general circulation.
Advances whic,h might be made by the Eank to the public were limited
to those aecuredby Government obligations , with or without fixedmatu
rity; securities of public and special financial agencies, including the
Credit Foncier, the Caisse Autonome d'Amortissement, and the Credit
National; municipal and departmental obligations; loans and other obli
gations of certain governments colonies and protectorates; and
issued by French railways. It should be noted that this list
does not include industrial or corporate seourtities generally.' French
railway securities were in a special class by reason of the guaranteed
yield thereon. Special authorization had to be given by the General
Council of the Bank for the admission of, anylssue to the list of ap
proved securities.
According to the statutes of the the amount of an advance
COUld, not exceed 80 per cent of the market value Qf the s6curitiespre
sented. When an advance was granted -yhe securities. were immediately
transf'erredtotl1e Bank and the borrower signed an agreement to repay
the advance at the end of a fixed period not-exceeding 3' months. ,He.
also agreed the value of the collateral whenever the market
price of the pledged securities dropped as much as 10 per Cent. In
case of the borrower's failure to repay the advance as agreed, the
Bank was authorized to sell all or part of the collateral.
Advances' f'or a maximum of 30 days on Government securities ma
turing 2 years or less, often called "pensions", were made at the
same ra.te as that foI' 'd;I.scounts, which was lower than the rate for
ordinarY advances. A higher proportion of the value of these secu
rities could be advanced than wae allowed on other collateral. In
June 1938 the Bank raised the minimum to 90 per cent and, On certain
securities, to 95 per cent.
. Thera.te structure' for the Bank s operations was simple There
\was usually a consistent relation between the discount rate and the
rate for advances. During 1938 changes were simultaneously,
the rate for ad-v-ancse being 1 per cent above the disoount rate, ex
cept that 30....datadvances on two-year public securit.ies were made at
the discount rate. The Bank: 8 published rate was applied without
discrimination to all customers ,in all parts of France. It "Ras not
-35
-. '-.'. - '., ..
possible,. accordingly, for the:Bankto' offer a more favorable rate to
tha strngest and most desirable a.ccounts ,and in this resp}ct it was
at .a disadvantagf3 .lncomparlson with the. deposit banks
.'rhe:Bank' suae of the discount, rate 8!3an instrument o:l:'po1ioy
differed.conspicuously from the methods of .some other oentralbanks.
From thebeginnlng 0:1:' the :Bankts history a wide distribution of credit
at a low rate 'had been sought and service to the business community
had been emPhasized rather thanoontrol of the money market. The
French econ0lDJ7', being more balanced and self-contained ,than that of
England, for example, had been until the 1930's subject to wide
fluctuations necessitating changes in the discount rate. In 1938
only three changeBwere made,the range being 2-1/2 to 3 per cent.
In 1939 the rate .of 2 per cent set on January 3, equal to' the lowest
rate ever quoted by the Bank, re.mained unchanged throughout the year.
By oontraat, thedistrubed conditions of 1935 and 1936 occasioned 11
ch.anees in each
\\
. A oOB.Q?a.rison of the d.1.Bcountrate of the Bank of France wIth that
" in the private discount in 1938 and 1939, to August'26" is
given below: .
Period High Low Average
(Per cent)
1938
, :Bank' of 'France
300
,,2.50
Private discount market
375 !I
2.33' !/
1939 :Bank of France 2.50 2.00
Jan. 1 - Private discount market
2.09 Y
1.90 1/
,Aug. 26
y Weekly average
Market controls
No for regulation, or control by the central,bank over
other sections of the s monetary and financial wae
provided by law. However, .membershlp of representatives of the Min
istry of Finance, the Caisse des Depots, anQ. other government finan
of' iihe Bank facilitates coopera
tion by the:Ba.nk with these agencies banks 'were the
onlybankins group entitled on.the General Council
under the law of' 1936. The' of' commercial and investment
bankers may have been a the domnation of the "200
familiea" and the "haute 'over' the 'central bank before 1936.
As in England,deposit banks, maintained reserves at the Ban.k of
France in addition to their vau:l:.t cash. Butthevol'mne 'of these
reservea,iaindeterminable banks grouped them.with
vault cashin their balance sheets (as caehreserves) TWhile the
Bank of France did not show bankers' deposits separately. The deposit
bankS were 1.Ulder nolegalobligatioh to maintain cash reserves of any
kind, so that the device of raising or lowering reserve requirements
as a measure of credit control was not available to ,the Bank.
Until 1938 the Bank of France was one of the few important central
banks which l?-.cked specific open market powers. There wes a body of
opinion among French economists that open-market powers were not de
sirable for the Bank or adapted to French conditions. As recently as
1936 the Bank made no claim to manage money and control credit, as
some of the newer central banks were authorized to do, nor did it wish
to dominate the money market. Its authority to buy bills :for account
of foreign central banks, however, gave it some experience in market
intervention. .
Open market powers were granted to the Bank by decree of June 27,
1938, to enable it to influence the volume of credit and to regulate
money market. Negotiable short-term bills and paper, such as bank
acceptances and short-term paper of the Treasury ana public bodies, .
could be bought and resold without endorsement. The law included a
strict prohibition against purchase for the benefit of the
Treasury or other is'suing public bodies. At the end of 1938, after
several months use of the open market powers,'the Bank held nearly
2 billion francs of French bills bought under'this authorization.
This was about one-fourth of the mount of such bills discounted at
the Bank on'outside initiative. The Bank reported that the open
market operations had been of use in supporting its policy of main
taining easy money market conditions.
Deposits and services
No was paid by the Bank on depositors' The
following types of accounts were maintained:
i. Depositacco1.Ults (comptes de depots de fonds): These ac
counts could be opened by any person.properly identified.
They were used to receive funds the Bank by
depositors, also transfers of funds from other accounts,
proceeds of bills and securities, etc. Checks could be
drawn. against these deposits. and transfers made from them
without charge. Holders of such accounts could "dOmicile"
their bills'at the Bank -i.e., make bills which they owed
payable at the Bank. .
2. Ordinary current acco1L.YJ.ts (comptes courants simples):
Operation similar to that of /(1) above, but more forma.l
ities Were required for opening .current accounts.
3. Current accounts with disco1.Ultprivilege . (comptes courants
avec faculted'escompte): Formal application and approval
were required for opening such an account, whlch carried
- 37-:
the <priyilege of submitting bills of exchange and other com
mercial paper for discount; minimum face-amount, 5 francs;
minimum period to maturity" 8 days."Other privileges as in
(1) above.
4. Current accounts for advances (comptes courants d'avances):
Holders of these accounts deposited approved .securi ties (Gov
ernrrient, public enterprises, and railro8;ds) and acquired the
right to 'obtain advances wben needed, against payment of
interest on amounts drawn. Other privileges as in (1) above.
5. Mixed current accounts for discounts and advances (comp'tes
courants mixtes d' advances et d' escompte). These accounts
could be opened by persons qualified to present bills' with
two or more signatures, for disoount; a dep?sit of approved
securities was required. The holder enjoyed all the priv
ileges listed under (3) and (4).
Transfers of funds between different in Franpe were
carried out by the Bank with the aid where necessary of the postal
check system. The Bank offerecldirect service between "places
bancables"; payments of 50 francs or bernade without
charge by customers to other persons, whether depositors or not, at
any place where, the Bank haG. an office. Also the head office and
each of the provincial ,offices of the Bank had a postal account
through which its 'depositors could make or receive paYrnentsto or
from. other places. The Bankcollectedf'or its customers without
charge checks drawn on any banks belonging to a clearing house or
on a correspondent of such a bank. These services were required
under the law.
Current services of all Treasury in 1938 iI;lvolv:ed
a turnover of more than 607 billion francs, or four times the tota'l
assets of the Bank at the end of the year. Treasury issues marketed,
at the Bank s counters reached a vblumeof about 5 billion francs
and subscriptions to or renewals of Bonsde la defense national
added another 2 billion. Tax payments could be made directly to the
'Bank for. account of the Treasury. Outside of these banking transac
tions there was little cooperation between the two agencies despite
the influence of the Minister of Finance upon the composition of
the General Council, and occasionalXY their policies had conflicting
effects'in the money 'market.
The total of Bank funds supplied to the Treasury, directly and
indirectly, cannot be determined from the balance sheet. On December
22,1938, of total to 143.6 billion francs the fe-I:
lowing, items were knowni;o be Government obligations:
,of.Francs)
Thirty-day advan.ces on public securities 0.4
Negotiable bonds of the
Autonomous Amortization Fund
5.5
Loans. without interest" to the State
(under various 1857 to 1938) 10.0
Temporary advance without interest,
repayable as provid(3d in Convention of
Noilember 12, 1938 20.6
Rentes. (required investment of part
of Bank's capital) 0.1
.36.6
In addition, Government securities in unstated amounts wereeu.mably
included in "bills discounted in France
ff
, ffnegotiablebills bought in
France" (open market purchases), and ffadvances on securities". These
three 13 billion francs.
The Bank an annual report to the shareholders and, as
required by law, a weekly the same form as its annual
year-end statement.- A handbook "Banque de France- Ses operations a
Paris at dans ses succursales" furnished detailed information for bor"':
rowers and depositors as to the Bank's methods ap.d requirements con
taineda list of securities eligible as collateral for advances, and
gave the location of all branches, agencies, and connected towns.
Comments on balance ,sheet
The follOWing page contains balance ,sheets for the Bank of France
at the end of 1938 and in August 1939; it is followed by brief comments
on the principal items.
Balance Sheet of the Bank of France'y
(In millions of francs)
Assets Dec. 29,1938 Aug. 31,1939
Gold holdings (coin and billion) 87,264.8 97,266.0
Coin: s"ilver, nickel, copper
Current accounts (postal accounts)
Liquid asaetsa-broad
510.2
592.5
17.5
627.4
485.1
10.L
Advances on gold (bullion and coin)
Commere:ia.! bills and Government securities
Billa discounted in France '7,879.8
15,009.2
Bills guaranteed by the Wheat Office y
Bills on fo:reign:coUntries
1,796.8.
21.9
1,708.0
18.6
Negotiable bills and other short-term
foreign assets
Negotiable bills bought in France
781.4
1,891.6
189.4
3,929:.7
y F'or notes on..individualitema, see follOWing" pages.
- 39
Assets
Dec. 29,1938 Aug,,31,1939
Advance on securities
3,611.9 3;805.0
30-day (maxiIn:um)' advances on public
. ties. 'withf'ixedmaturity (not
o"ier 2 years) . .' " . , . , .
2,412.3
N$gotiablebillsoftheCaisseAutonome
. . Cl. 'Amortissement " . . , . .
5,530.3 5,466.1
Loans without interest to ,the Government 10,000.0 10,000.0
Temporary advances'.,withoutinterest to
the Government, - . reimbUrsable
20,627.4 20,576.8
.' Rentes 'earmarkedf'or' speicalpurposes
.su.bjectto 'speciaLprovlsions .
113.0 113.0
Real estate and property of the Bank 4.0 4.0
Miscellaneous assets 3,222.7
Total . '144,309.5
166, 407.6
Liabilities
Capital.
182.5 182.5
, Surplus
,30}.2 303.2
investedtnlegalsecurities 22.1 22.1
Ref1erve (real ..
4.0
. Derriand liabilities:' .
. Notes, in . ,: . . '110,934.8

Curr'ent account ,of. the,' T.rE;taeiury 2,838.9 1,252.3.
Current account CaiSse
Autopom.ed'Amortissemerii:; 2,222.6 2,051.3
C
1
irreritaccoAAta and deposl:t accounts
25,397.2 17,897. 2

,'198.1
140.5
Miscellaneous liabilities' . 2,206.1 2,195.8
, ' Ill" .' ....
. Total . .. '144,309.5
. . ". ," .
"Assets
. Gold ,coin and bullion encaisse or (monnaiesetl:tngots) " . This
item is the reserve against note. circulation and other'demand liabili
,ties. , It belongiIlg to .the-Bank, but is
supplemented" for by the gold holdings' of' the
Exchange Stabilization Fund.. reserve to. all
demand liabi1itIes was' '6i 29, 1938, and 59 per cent
on August 31, 1939; the legal ratio'required until September 1, 1939 was
35 per cent,. The gold was ,vallied"atthe rate, of ,0.0275.: gram of gold
nine-tenths cents per franc. The increase
.between the two dates is accounted for by two transfers of SOld, amount
ing billion francs each, to the Bank from the StabilizatIon Fund in
April-'and July 1939. . .'
Postal current accounts (Comptes cOurants postaux): Reserves of
the Bank withtheOfffce of Postal Checks in
. .
- 40'
",>Liquida.ssets a vue a 1 t etranger) : Dema:tid
of the central 'banks and other banks abroad.
Advance against gold coins and
naieel d ror) : Such loans were not ma:de;in;.:193B ;::and;c1939.'
Commercial bills and tie:S: j'{Portfeui lIe .!:cbnmi.erclal:
et d ref:Bets
. .... Bills France (Effets"esoomp,tes; .. s.ur .
counts'and"rediscounts'bf: .. domestic commercia51:':b;ills;':ar:id;:als.Q,Trea.sU3!'Y
bills not shown separately. The latterJ!a.d:{tcf f:be.;,'w;i:thin twe:8L!D.Qnths.:
of maturit:y- and to bear the endorsement of,the:.borrower
Bills guaranteed ,by the Wheat Office (Effets et warrants"agricoles
avalses:par'l 'Office "du<b],.e}: Discountof.bills and warehouse receipts
connection with the establisbm81J,t,:L9f.::.:,.:i,
an official price for.home-grown wheat.
,:Bills on foreign ,cOuntries (EffetE!! e:s.-comptes:'!;a i'"
billspayable a1?road::dPawn by French exporters. .
c: .. Negotiable bills a.nd; other short-term forei ;{Ef;fe.tst
negoeiablEH:r et autresi3nlP16is a court, ;,Acceptances
of English and American banks , also British';:and American,Treasury,:bil:);s,
boughtcfo:t' account of, tlie,Bank of France by
Federal Reserve Bankof".NeW:York.
Neotiable bil18,b6 fit in France (Effets negociables,,:aQhetesJen
item. open-marketcpurchases by the Bank,. under
the authorization 1938, of negotiable short-termpubllc
securities and private bills eligible for rediscount.

of 90 days'" renElwabi:ei,df not repa
French,arid oolonial
privateLfihanc:i,;al"fnstitu]ioris ,',and::,rai.:lr.Qadsio,<:J:N.o[b.'\.gl,Ore.
cent of.;rbarketva1ue; (C6u:r:S'iBllcomptant) bec,gJra.;r=.lite.Q.;,:,. y?-:p;ge;1'.f ....
tt;ne;ac:t:u.al::rlimi.tt.is -, .
advancgis '.' 250:;:t'ranqs:,; 'Rateln';' pe:r..
than ..
,Thirty':day advances OIl
(!iY33n
C
@shJ' .
effets publics a echeance determinee n' excedant pas
" i' ......... _ .. .
,Wegptia,blebilla dr.. .
la Caisse, etc.): 'Bills of, the Caisse (see page' 13'8)'
were given to the Bank in 1928 when the assumed the loss
- 41
sustained oIl,World'Warcredits to RUBsif' and in1931to cover the Bank's
loss on when'EnglaIidwentoffthe gold 'standard. Cer
tain funds ,are assigned for gradual amortization of the bills.
Loans without interest to: state (Prets" sans 1nteretsa 1 'Etat) :
Permanent loans for the duration' of the Bank's note-issue privilege;
latest interest under law.of November 12,_ 1938. Bank reCeived one-
half ,of one percent per annum, on amount of loan, for expenses. Item
under liabilities "courant .du Tresorpublic" includes unused ba.lance of
this loan.
Temporary advance without Jntereet to the Government (Avance
provisoire .sans interetsa 1 'Etatrembours'able conformement a la conven
tion du 12 balance of advances made from 1936
to 1938. Certain fup.ds were assigned to amortization of this debt.
Bank received .2 of one 'per cent per annum on the outstanding amount,
for expenses.
Rente.s earmarked for s ecial ur oses (Rentes pourvues d" affectations
speciales ' : GOvernment ties in which the' Bank was required to
invest part :of its capital.
Real estate' property of the Bank (Hotel et mobilier de la'
\ Banque): ",Value of the Bank's real estate above the nominal of 4
million francs represented a hidded reserve.
Miscellaneous ass'ets (Divers): Contents of this item not dis
closed by the Bank. It included checks and bills in process.of collec",,'
tion, em;ployees' pension funds, etc.
Liabilities
Capital (Capital de la Banque):*Oapital uncp.anged since 1937,
although its gold value, in 1938 was only a fraction, of
value.
Surplus (Benefices en addition au capital- -Reserves mob'llieres
legales--Reserve immobiliere.): The firsti tem had to be increased
by paJ.:'t' of' the proceeds of discounts .rate was above 5
per cent. The. second has been unchanged since 1857. The third is
a nominal item representing a full reserve. againstthe'Bank's, in its
premis,es
\
'Notes in circulation (Billets au porteuren circulation): In-'
eluded all notes paid out,whether in the hands of the public, in
the tills of banks, or' destroyed. .
Current account of. the, Treasury (ColllPte
This item contained the' unused balance of the 10 billion franc loan
without 'interest .. Collections for the Treasury and withdrawals by
it were handled.through th1.s account.
- 42
Current accounts of the Caisse autonome. d 'amortl:Ssefuertt: ThA
Caisse, described on page 138., kept part of i tsfunds'
Current accounts and de:posit accounts (Comptes courantset comptes
de depots de fonds).:' This item contt::l.ined deposits of, banks and pri
vatepersons as' well as those of public agencies such as the Caiss6
Depots. etConsignations, (see page 134), the postal service, and the
government-owned railroads. It also included Stabilization Fund ac
count, managed by the Bank under Treasury instructions.
other demand liabilitieu (Dispositions etautresengagements a
vue): Various small items including certified checks, proceedeof
transactions not yet paid out to customers, etc.
Miscellaneous liabilities (Divers): Includes in part items of
offsetting certain of the "miscellaneous assets" ; transit items, staff
pension and insurance funds '. etc.
II. Deposit 'and Investment Banking - General Survey
Legal framework
Public banking institutions in France have a specific legal
character and operate under special laws. The whole of the private
banking system,- however, was governed by no special banking legis
lation. The banking, business was considered simply as a "trade in
money" ("commerce d'argent") comparablE? to any other trade. No spe
.cial charter of any kind was required for a banking enterprise'; there
were no provisions concerning the ratio ofbariking' capital to deposits,
ill required reserves for banking institutions, and no,limitations on
the types of loans and investments whichbankemight make. Of course,
banks organized in form were subJect tothegeneral'provi
sione of corporation law c.oncerning the publication of their articles
of incorporation, their annual balance sheet, theproceedihgs of their
meetings,etc. Private banks not organized in corporate
formwerea-carcely affected by any legal restrlcttonS.
There was much discussion in France before the war of the need
for apecialbank:legislationand.numerous bills were introduced in
Parliament with this objective. Almost the only reSUlt, however, was
of 1930 prohibiting persons from acting as director or manager
of a'bank if they: hadbeenconvicted,ofcertaincrimes,or if they
were bankrupt . y
There was not even any legal rela,tionship' be"tvteenthe Bank of
France and the private banking system..The Bank of France wielded
influence ,only because of its'prestige and of ItsP.QE:li.:tion as a last
resort for credit.
y In 1935 these prohibitions extended to cOver' the 'directors
or ma.p.agers of allco;rporations.
- 43
General statistics
Asa result of the lack of banking legislation and banking super
vision There was
not eVen a clear line of demarcation between banks and other .corpora
tions engaged in commerce and financial activities. It is therefore
necessary to rely to a considerable extent upon private compilations
and estimates in the field of banklngstatistics.
The table on the following page presents a picture of the net
work of French banking offices at the .end of 1935. Aside from the
offices of public and semi-public institutions (which were very nu
merous since all PostOfflces were agencies ofthe Postal Savings Bank
and checking system), .there were. about -9,300 banking offices.' . This is
far lees than existed in the United States with its unit banking sys
tem; it was about the same number as in England. A measure of the
centralization of French banking is given by the fact that slightly
more than two..;thirds of the banking offices in 'France (aside from
those 'of public institutions) belonged to the 23 principal banks..
French Banking Organization in 1935
Number of Offices .
Ty:pe ofbanks Number Paris \:proVince 'Algeria ITotal
. "Corporations
Large deposit banks
Large regionalbanke
Regional banks
6
5
12
290
16
9
315
4019
-.516
1126
5661
37
283
320
4346
815
1135
6296
.Independent provincial banks
. w:ith branohes 93
Local provincial banks 220
Large buainessbanks (Paris) 5
Mediumgized banks. (Paris) . 100
Small banka (Paris) 350
Colonial and 'Franoo-foreign
banks 40
Foreign banks
'(branches in France) 33
Mo:rtgagebanks and kindred
54
6
100
350 .
Iii
40
21
18
675
220
59
27:
15
"9
675
220
6
100
350
40
95
:54
Tqtal Corporations 8,o
,6642
344 7836
- 44,
Number, of-' Offices
'TypeS' of banks Number
'-'Paris
Priva,tebtinks
"Important"hbuses (Paris)'
50 50 50
"Im;portant" provincial houses
with branches 82
305 305
Security houses "coulissiers"
(Paris)
93
400
93
Various'houses (Paris) 400 400 400
It" It (Provinces
620 620 620
Total private banks 1468
Total 'corporations and
'private'banks
9304
Public and Semi-publio
institutions
Bank of France 1
5
251 47 303
People's banks 78 621
Caisses regionales de Credit
Agricole 98 98
Affiliated "oaisses locales"
of Credit Agricole 6100 6100
PrIvate savings banks ("in
eluding auxiliary
,560 2190
Postal Savings Bank (Af
filiated postal offices) 1 '13115
Postal checks offioe (Number
postal offices)
17000
The tables en the' two following pages give a summary of the bal
ance sheets of the 190 most important banking corporations at the end
of 1935 and additional 'figures Covering 9 public banking institutions
for the same date. No data in comparable form are available for sub
sequent years; however, the table on ,p.48 presents figures relating
to the end of 1938 for the most banking institutions. These
figures again illustrate the considerable degree of oentralizationof
Frenohbanking, although at the same time it will be apparent that there
was a very oonsiderable variety of types among the" lesser institutions,
especially those operating in Paris. Some 70 percent of the demand
deposits held by banking corporations operating in the domestic field
at the end of 1935 were with the6 large deposit banke and a f'urther
18 per cent was held 'by -5 large regional banks and 5 large business
banks.' .
- 45
, Perhaps the striking fact about French banking as compared
with that in the United Kingdom and the United states is the compara
tively low amount. of deposits . The total amount of deposits held by
the 19Q,banking,corporattons only ,54 billioll
francs at the end of' '.1935; 'At the' ofexchangethenpreva1lins,
this was equivalent, to onlythree-quari;:.er b11li'on poinds (as against
total deposite,< of about two billion pounds in Englieh banks), or 3-1/2
billion dollars (as compared with '49 billion dollars of depoaits held
by American banks) .' The two leading English banks (Midland ahd Lloyiis)
--and the two, largest banks in the United states (the Chase National
Bankand,the held an amount of deposits equal
to the total held by the French'banking
The comparatively lowlevelO:fdepositsinFraIlce should not be
regarded as an index of the wealth the scale of
its economic activities. As has been pointed out before, it results
primarily from the yontrastbetween the prevalence of cash'payments
in France .and the extensive ...Saxon coun-'
tries. A special fact'or during the 'thirties was the widespread
hoarding Of, currency in France.
Origin of funds
The funds of commercial banks could originate from tbreesolirces:
(a) the bank's own funds (capital and reserves); (b) funds belonging
to and (c) fundS obtained froID. other banks (bor
rowingfJ from other commercial banks at home and . abroad." or lundsob
tained from the Central Bank by redisc01.m.ting or obtaining' advances
on bills and other assets).
dapital and reserveS. The capital and reserves ,of a ban4: were
priIIlarily not as working capital, but as a margin'<of secur
ity for depositors ,against eventl1al 108.ses, in the bank'soperatiolls,
The capital and reserves of.French,b.anksconsistedin the first in
stance of the capital paid In by shareholders and of the surplus,
either paid in by"shareholders when shares were iS8.uedat.aprem1um.
or accu.m.ulatedfrom earnings., In several banks only pa.rt,of the
"nominal" capital was paid in; the unpaid amount was callable from
shareholders at anytime and constituted an additional protection
for the bank's' d.epositors. It was also common practice for the banks
(especially the largedeposit,banks) to/have large hidden reserves
resulting ,from the deliberate undervaluation of their. assets. It is
k::n.own, however, to what. extent these reserves' had been' eliminated
during the banking crisis of the' thirties.
, The smaller the risk involved in abank'"slending. operations,
thesma.ller couldbe the raiio of its capital to its deposit liabili
tieS. The large Frenc,h deposit banks .. engaged in principle only in
safe short-term credits, and in 1938 (seetablep. 48) the ratio. for
these banks was dn.lyabout 10 per cent. It was rather more than 10
per cent in the large regional banks and much higher (nearly 20 per
cent )irithe business b,anks.
-46
POSITION OF FRENCH ,BANKS IN 1935
Assets
{in milli OIU] of francs)
Institutions
Bills
Cash Balances and Colla-
re- with 11 Treasury tarel
saryas bankers notes loans Debtors
Par
tici:'" Long
Securf- pa term. Prem.1aes, Miscel
ties tiona loans etc. 1aneous
6 Large deposit banks
5 Large' regional banks
13 Regional ba.nks (Group C.I.)
39 Regional,., and local banks
4,081, 2',346
668 369
419 217
137 71
18,772
3,635
1,457
380
1,813
960
165
- 50
9,166
1,697
1,253
712
131.-:
'192
'61
64
53
6
5
148 206
241
189
94
30
26
210
5 Large business banks 408
33 Local discount banks (Faris) 109
34 Local industrial banks (Faris) 377
7 Banks for building' trade (Faris) 31
:J:2.. Banks for securities bus ines8 41'
155 Domestic banks in corporate form 6,,271
359
32
35
11
14
3,454
1,304
267
623
120
89
26,641
26
1 1 ~
86
79
3,291
1,366
314
810
121
122
15,561
802
118
605
11
27
2,011
202
:3
6
11
~
1
73
583.
2
659
97
3#
.13
35
12
921
32
11
26
10
""'345
countries
16 Commercial bankB I'or foreign I
11 Commercial banks for colonies
.-12. Franco-foreign banks
35 Colonial and foreign banks
626
58
88
772
320
22,
~
374
920
309
~
1;194
116
47
1
164
2,247
467
~
~
1
', ;'...
v(
170
--2.Q..
373 105
94
11
76
209
.3i'
1. 'Credit, Na.tional 85 64
335 30 3 980 22
1 Credit Foncier de France 169 48 19'5 522 - 18,552 62
7, MortgagebankB
9 Public Institutions
.-X1..
281
~
392
--2.Q..
261
~
590 -
583
2 0 ~ 1 1 5
11
'95
-'
199 Banking Institutions 7,324 3:,892 28,4;3 3,493 18,969 2,974 539 20,860 1,330
1/ Mostly with foreign bankers in the c ~ e of the large deposit, large regional, and large busine'ss banks, and
the cormnercial banks for, foreign countries; banks hOlding balances for .other banks included ,themon the
liabilities side.
--
- 47
POSITION OF FRENCH BANRS IN 1935
Liabilities
(in millions of francs)
Miscel-
.Surplus Reserve
Demand Time
11
Bonds-laneous Capital and for
depo- depo- Accep- and ~ i a b i - Nominal paid undivided contin-
tanoes notes lities capital in profits gencies
Institutions aits sits
._
6 Large.deposit banks 30,993 1,563 451 197 1,825 1,474 1,987 9
5 Large, regional banks 5,443 731 110
59 547 547 391 3
13 Regional banks (Group C.I.) 2,652 422 171 10 530 279 103 41
39 Other regional and local banks 873
208 13 26 384 305 60 34
5 Large business banks 2,315 874 251
8 716 674 349 55
33 Local discount banks (Paris) 546 94- 17 11 4 242 230 46 10
34 Local industrial banks {Paris) 881 165 124 296 30
904 .
668 280 17
1 Banks for build1.ngtrade (Paris) 178 8 513 32 8 99
60 76 27
.J:2.. Banks for securities business 128 112 -
1 115 115 15
2
155 Domestic banks in corporate form 44,015 4,177 1,656 339 343 5,362- 4,352
3,
30
7
198
countries
16 Commercial ba.nks for rforeigh 2,503 874 229 21 692 497 331
26
11 Commercial bankEl for colonies 54q 60
.9 50 16
.33
4 322 105 49
--A. Franco-foreign banks 487 99 31 4 145 120 19
2
35 Colonial and foreign bankEl 3,537 1,033' 2b9 50 LiT 1,171 '939 45-5 77
1 Credit National. 169 268
369
280 100 80 103 199
1 Credit Foncier de France 374 635 - 16,176 240 375 375
962 511
:7 "Mortgage "banks 27 475 18 .135 3
61 25 20 26
9 Public institutions 570.1,378 IE" 16,680
523 53b
~ 1,085 ~
=
'199 Banking institutions 48,122 6,5881,943 17,069
907 7,069 5,771 4,847 1,011
!.I In some cases the Item includes liabilities other than acceptances proper (letters of credit, etc.)
Note: For purposes of comparison it may be noted that at the end of 1937 deposits were held by public and
semi-publ.ic institutions as follows in millions of francs: 97 Caisses regionales of the Credit
Agricole: Demand ... 1297, Time - 2231 (Government loans and grants); 76 peoples banks: Demand - 929,
Time - 74; 560 savings banks: Time - 36,256; and the Fostal8a.vings Bank: Time - 25,112. In a d d i ~
tion private depositors held demand deposits with the postal checking system at thE' end of 1938 to
the amount of 4,092 million francs. _ l
- 48
',I
:PRINCIPAL FRENCH BAN"KE *'END OF ,1938
(in millions, of francs)
3
4 Inde- 13 Regional
largest
3
next
5
banks
deposit deposit business regional (Group
Assets banksy banksg! ,banks
11
.banks!!-..I C; I.)
Cash reserves
3,670 769 790
826,
591
Balances with 'bankers 2,960 1,496
8772/
308 411
Bills and Treasury notes
19,893 5,995 2,5
2
3 3,618 2,5
2
7
Loans and advances 51 8,430 2,167, 1,267 1,565 1,074
, Securities andpartIci
pations 64 219 944 124 103
'PlJemises and fixtures 1.21 98
95
181
179
Sundry assets /
570
241 143 473
664
Total assets
35,707 10,985 6,639 7,095 5,5
2
9
I .. iabilities
Demand deposits
30,741 8,905 '4,058 5,152 3,116
Time and indeterminate
deposits 11 815 780
960 '
485 605
Acceptances 672 352 354
114 63 101
Sundry liabilities
fl.1
366 149 168 629
454 -,
"Nominal" capital 1,425 475 676
377
525
(Capital paid-in) (1,,123) (435) (672) (377)
(288)
Surplus and reserves 1,689 324 423 338 167
Total liabilities
35,707 10,985 6,639 7,095 5,529
Net profit
1938 "
180 42 52 35
24
1/ Credit Lyonnais, Societe Generale, Comptoir d'Esc0mpte
'2/ B. N. C. I., Credit Commercial, Credit Industrial
'J.I :Banque de PariS-Bas, Banque de l'Union Parisienne, Union des Mines,
Banque des Pays du Transatlantique
y Credit du Nord,Societe Marseillaise', Societe GeneraleAlsacienne,
Compagnie Algerienne '
5/ Including debtors per acceptances
bj 'Including, shareholders' liabilities and various contra items
11 Including creditors for,bills in cQ1lI'seof'collection a.nd other
/ short term liabilities
'8/ Inoludingdividendsto be paid and per contra items
,'91 Included by some banks in their caahreserves
Io/ Som.etimes included'in the per contra items
Deposits. In French terminology, the term "deposits"was gener
ally applied to the accounts of individuals, and "current account"
(creditors to the accounts of business enterprises. This distinction
was not always, maintained, however, and the two types of accounts are
generally referred to as "deposits" in the following text. Even the
distinction between demand deposits and time deposits was not always
made clear in the balance sheets of the banks and in banking statis
tics.
, It has already been pointed out that the use of deposits for
checking purposes in France was very much less'prevalent than in Anglo
, Saxon countries. This was due in' part to the stamp duty on checks
which in 1938 amounted to 50 centimes, a considerable deterrent to
check payment.s. As a result, demand 'deposits in France tended to be
much more stable e. there was a much s,maller turnover in such ,de
posits) than in England and the United States.
Aside from the extensive Use of currency in effecting payments,
even large payments ,between business enterprises, there was very ex
tensive hoarding of currency in France before the war., Partly as a
result of the distrust of banking institutions, but even more be
cause of the desire to evade the increasing burden of taxes, liquid
balances were commonly held ,by individuals in the form of currency
rather than bank deposits. Some measure of the scale of this hoard
ing of bank notes maybe obtained from the amount ,of notes of high
denominations which were in circulation. At the end of 1938, the
total note issue of the Bank'of France amounted to
francs, of which 62.5 billion was in 1,000 franc notes and2.1.bil
lion in.5,000franc notes. ,Substantial amounts of these high de
nomination notes may have been held by banks as vault cash, but
since some notes of sma.ller denominations may also have been
ed, the total amount of immobiliz'ed in hoards may have
been as much'as 30 to.40billion francs.
The rates of interest on deposits Were established by the
bankers r' association asa f'u.L'lction of 'the official rate, .i.e. the
discount rate of the Bank of France. The schedule of rates on
dep'osit,S' differentiated between the different types. of banks and
their location. The' banks in Paris were divided into three groups':
the 6 large .deposit banks, a group of middle-sized instit1,ltions, and
the rest. At the end of 1938 when the discount' rate -of the Bank of
France was 2-1/2 'per cent, the rates payable on demanddep-ositsby
these three groups of banks were 1/2, 5/8, and 1/8 per cent, respec
tively., .:Higher rates were established for banks in the provinces.
'This'schedule of rates was apparently not very closely observed by
thes:maller institutions; in fact even the larger banks -- sometimes
varied the rate accordip.g to the importance of the depGsitor.
:Higher rates were paid by the deposit banks on savings deposits,
but the volume of these deposits was never
still higher rates were paid by the savings lJanks. Therestrictions
- 50
on withdrawals from savings banks were of a nominal character so that
many persons -- even small traders or craftsmen -- used the savings
banks. for their "liquid funds. A discussiono:r" the savings banks, whi.ch
were emi-public institutions, is given ina later chapter (seep. 128
and ff.)
obtained from other banks. Borrowing from other banks in
the money market discussed in detail below; it was not quantita
tively of great importance in French banking. However, the resort to
the Central Bank (and to other official institutions) is much more
common in French practice than in Anglo-Saxon countries. There was no
prejud.ice in France against the frequent use of the rediscounting
facilities of the of France, although the large deposit banks
did not find it necessary to do so except.in times of special strin
gency. As pointed out. in the chapter on the Bank of France, that
bank also afforded liquidity the banking system oy advancing funds
against The development of these facilities during the
'thirties left the banks by the end of 1938 in potentially avery
liquid position. The activities of the Bank of France in this field
were supplemente.d by those of two other official institutions,
Caisse des et Consignations (see p.134) and the Caisse
d'Amortissement (see p. 138); these bodies which had the disposition
of an important amount of liquid funds, also developed a policy of
making short-term loans on Treasury securities.
Use of funds
Cash reserves. Cash reserves normally consisted of vanle cash
and balances with the Bank of France, althoughs.mall banks sometimes
included also balances with other banks. The determination of the
true cash position of French banks was very difficult not only be
cause of such differences in the calcult:ition of this ltemfor ,balance
sheet purposes, but also because of the practice of."window dressIng"
. Most French banks made pub,lic only annualbalanc& sheets and even the
few large banks which reported more regularly gave only the 'situation
as of thelas,t day of the month. It was a "recognized practice for the
banks to build up their cash positions on the reporting dates in order
to make a more favorable impre.ssion on the public 80 that published
figures usually exaggerated the "normal" cash positions of the banks.
Cas.h reServes. tended to increase in periods of political and _
financial instability. It has been pointed out previously how readily
the Bank of France made funds available on rediscounts, or advances
against securitiesj for example, the cash reServes of the Credit
Lyonnais increased from 1,015 million francs to 2,555 million from
the end of April to the end of May 1938 and from 1,227 million to
2,396 million from the end of July to the end of August 1939.
Balances with bankers. Balances carried by banks with corre
spondents other than tlle Bank lof France were not generall.yconsidered
to be cash re.ser'ves. These inter-bank balances never played an im..,
- 51
portant role wi thin Frahbe owing to the liberal facili tiespr6vided '
by the Bank of France, but the large French banks often held consid
erablefundsabroad. The flight of capital frbm:France which took
place during the' 'thirties was In part' effected through the large
banks. The depositor would acquire a deposit with a French bank de
nominated in dollars or pounds sterling and as' the 6o"-unterpart of
this deposit the bank would hold dollars 'or sterling 'funds with its
foreign corres1>ondenta. The importance "of these balartbes' with for'-'
eign banks is shown in the tables on pa'ges
portfolio . The most tmpo:rtant 's'ingleasset of French
de:pos,itbanks their "commerical ,Tt must be borrtein'
mind, however J that the name lsmisleading in the sense that since the
first World War banks lncluded in .this item their extensive holdings
of 'short7"term treasury paper. No precise data'are avallableconcern
lug the proportion of the commercial portfolio which took this form,
but at the beginning of 1938, i twas probably between 30 and 4o per
cent; this 1>roportion no doubt .further increased in subsequent yea\--s.
The commercial bill proper was traditionally considered as the
best type ofbankirlgasset,beingbynature self-liquidating and
/being eligible for rediscount at the' Bank of France. By 1938, how
ever,'commercial bills had lost in France, as in most otheroountries,
their former dominance in t,he short-term credit. field. In France the
tendency toward industrial and commercial concentration reduced' the
of commercial bills, especially' since large concerns
were reluctant to see their signatures in circulation. Also the ex
tension.of the field of public and of public contracting
in the French economy reduced theus.e of bills since the Treasury
and public agencies would not accept, them. In 1938, ,however,e
specialba...'"lking institutIon was established (see p. 139) to finance
government contractors partly by accepting bills drawn by them which
cquld then be dIscounted with 'ihebanks'.
Loans. Under this hea'ding in the balance sheets of the banks
was grouped a,great variety of assets' . The only distinction tabe
found inmost balance sheets was between loans granted wIth 'col
lateral and without.
The loans on collateral consisted principally of loans on com..;,
modities and loans on securitie's. ' The fo:rmer included documentary
credits secured by goods ill transit or in courSe of fabrication,
and credits on stored commodities represented by a "warrant" (ware
house receipt). The loalis on 'secUrities, as in all countries ,were
used prim.a.rily to finance operations on the stock exchange. These
loanawere not, particularly sizeable,especially in compa:rison with
American practice.
The loans.without specific 'collateral were principally loans
on "current &Ccount".These could be either without any guarantee
("credit en blanc"l or they might be secured by the pledge of
- 52
mortgages, securities, or life. insurance policies, by guarantees of
third parties, 1/ etc. The practice of cp.rrent account credits is
analogous in many respects ,to the British system of overdrafts. The
customer of a French bank opening a current account would'receive a
binding engagemerit from the bank for an indefinite period that he
would be permitted to draw upon this account until the debit balance
reached an agreed figure. Somet,imes'two maxima were agreed: the.
amount not to be exceeded normally and a larger amount for peak re
quirements as, for example, at the end of the month or quartel:'. The
customer could also use this account for deposits, collections, etc.
so that he 'could build up a credft as as a debit balance. Dif
ferent types of'banks followed very clifferent practices 'in extending
current accou...11.t credits. The large deposit banks tried to confine
'their operat:tqnsrather rigidly to short-:term self-liquidating loans
(especially seasonal loans). In regional and local banks, however,
a much more liberal loan policy was evidentj sU'ch loans were made by
banks to supply regular working capital for use by industrial
enterprises and sometimes even funds for tely long.::terni pur
poses.
Loans generally involve a greater measure of risk from the bank
ing point of view than discounting billsj .. however, they give better
accommodation .to the customer. Therefore the ratio of loans to dis
countsis often an index of the intimacy of relationship between banks
and theit' customers .. The ratio of discounts to loans was lower in
Germany and in Belgium than in France, indicating the closer rela
tionship of banks to' industrial corporations in Belgium and Germany.
In Francethis ratio was lower in the regional and local i;,han
in the large deposit banks. Of course some care must be taken in
deriving conclusions from such calculations in view of theinclu
sionofTreasury paper irithe "commercial portfolio" of French banks.
I '
There was, of course, much more variety in the rate.of Interest
fol:' loans than for discounts. While fol:' discounts the ratesfluc
tuatea610sely around the discou.nt rate of the Bank of Fra,nce, the
rates for .loanswere much higher and varied markedly accorp,lngto
the standing of the customer and the particular type of gu.al:'antee,
if any, was offered. '
Investments. The bulk. of the investments of French banks were
in theaecurities of industrial and financial enterprises .. Banks
had only small investments in their premises. and other real estate
and held virtually no long-term governmentboncls .. Their security
holdingf!lwerebrolren down into two categories shown separately on
, .
For exam;ple, a large corporation might guarantee a loan 'granted
to a subsidiary, or the directors of a corporation'might person
ally guarante'e a loan granted to the corporation.
- 53
their balance sheets, i. e. portfolio securities (";pori:,efeuille:'ti tres")
and participations ("parti.cipations"). The former were 8'ecu:rft1es .
heldbythe bankae 'more or including
in affiliated corporations. Thelattercon.slsted
primarily of holdings of a 'transient character
through its participation in an underwriting o:r'distributtngsyndi ...
cate."}} It is 'believed that this distinction was not
fully maintained but there is noway to verify this belief since the
banks never published a list of ,the securities included. in theSe'.two
balance items.?-/Thes6 assets appear to have been valued con...;
servatively sheet purposes; especially inthecaseof:the
large deposit banks they Seem to havebeen deliberately undervalued
in order to give the'bank hidden reseryes.
In'general, most of the securities carried under either of these
two'headings originated with the bank's participation in,an under
writing or distributing syndicate; there was.frequently a greater or
lesser delay in passing securities thus acquired onto the public.
Indeed,. the business banks and even some of the large provincial
ban.k:s aometimesheld for an indefinite period part of security issues
which they handled; they retained them not 'so much fer their yield.as
for thegreaterm.easure of control and mutual, interest 'which this
the issuing corporation.
The general technique of issuing securities in the French capi
tal market is discussed ina later section' (see p. 58).
The role of the banks in the money market
In the post-war period therewas;a tendency 'in Franceto'adopt
the :BTitish' custom and to use the term', "money marketI' in two senses .
In a general sense it signified the market for short-termfurids as
distinguished from the capital market. But in banking circles and
in financial "money market fl was often used in a more
restrictedsens6.,belngappliedto loans at very short term, con
cluded primarily between bankers, without collateral or on some
standardized types of collateral.
In France, the money market, never reached large proportions,
however,despite efforts to develop Paris as a financial center when
in the late I twenties it became the haven of a large volume of foreign
liquid :runds. Certain special institutions established to develop
this funotion are described in another section (see Banque Francaise
d'Acceptation - p. 116, and Cie Parisienne de Reescompte - p. 117).
While the_term "partic?-pationa'-' was used in this sertse for bal
anc.e .aheetpurposes, it should be noted that in general use the
word had almost the opposite meaning; thus it could be said
that some' banks, particularly the business banks, had "partici
pationsuin particular industries, meaning that they held an
those industries in the form of a semi-permanent
investhient.
A;swas.done, for example, by Belgian banks with respect to
their .eeurities'portfolio.
->54
Day'-to-day money. Operations in the money market consisted partly
of lo$,nsbetween/ banks, or: "r,ather loans On a daily basis (argent
au jour Ie jour),' corresponding to the. New' York market in Frederal
flinds. The large deposit ba.nkspractically,neverborrowed day-to-day
.money; they only The chief borro'We:r-s were the private bankers,
the business banks, and the __ branches of foreigp. banks ,. some of which
were also sometimes lenders.. Rates varied widely according to poli ..
cal and financial conditions; during the three years 1936-1938, the
monthly-average rate between 1.31 per cent in May 1938,
and 5.36 in June 1936. It should be noted thattechriicallyday-to:.
day money was not granted,as a straight loan, but rather in the form'
of'a '''pension'' ,as desc:r-ibed below.
The private discount market. The private market for
("marche prive" or "marche hors banque") was much less developed in
Fra.:n,ce than, for example, in England,primarily because bank's ac
ceptances were not/available j.n'large quantities. The bills were
generally catego:r-ies: 1. bills of first cate
gory (premiere banque), bea.ringthe signatures of the first rate
private banking houses; 2. second category, or rather "first -second"
_banque) ,inclUding the' acceptances of the large
IIEtablissements de credit"; 3. second category proper (deuxieme
banque), including the acceptances bf other important banks and of
commercial and industrial enterprises of high standing.
Paper of the first and ,second categories' enj,oyed practically
the same uniform rate, but rate applied'to different bills of
the third category often varied. In general,barikers'acceptances
enjoyed a lower rate than commercial paper. The rates were gener
ally;, below the official ra.te of the Bank of France, except in periods
of stringency; when they attained or even exceeded the official rate.
The spread between the official and the private rate indicated the
degree of ease of the money market.
The large deposit banks, particularly the Credit Lyo:rrn..ais, were
the largest takers of paper, which they normally held until maturity.
They often discounted their own a.cceptances of billsissp.'ed on the
basis of commercial transactions. Some private banks were also large
h6lders'ofpaper ,. as well as the agencies of some foreign b'anlts. The
most important sellers were some private banks, thebusiness'banks,
and the provincial banks. The transactions were carried out either
directly by telephone 'or by about 15 to 20 brokerage houses a'oting as
brokers").
acoeptancesbought on the private market arem1xed in the
balance-sheets with other bills, including even Treasury bills, so
that n6evidence as totheirvolume is available. However, the amount
of bills accepted by banks appears in their balance sheets.
-
Acceptances of the PrlncipalFrench Banks
l
/
(millions of
6 large deposit banks 258 1024
2 large business banks 140 ?67
Bq. Francaise d'acceptatton
Bq.Fr.du Commerce. Exterieur
53
60
42
.. 149
Total '511 1482
l/Nodata are availaole on the a.cceptances of the private banks, which
- . may have been as large as the total figures in this table ..
Sp'ecialefforts were made to develop the acceptance market in Paris
in the late 'twentles,aspecial bank for accepta.nces being.fo1l.Ilded.at
the end of 1929 (see p. 116). But the volume of acceptances fe.llmark
edly during the'crisig years and never recovered to the level of 1929,
despite the depreciation in the value of the Asidefromtheef
fects of the crisis, the attempt to develop an acceptance market was
handicapped by the absence of a large volume of bills originating in
foreign trade. '.
The market in "pensions". Operations "en pension" w:e:re perhapE
the most important section of the money market. The "pension" was
equivalent to a short term collateral loan against bills (commercial
or banking acceptances) or --much more frequently -- against Treas
ury bills and notes. The rational method for mobilizing such.bll1s
would have been to rediscount them or tOUS6 them as collateral tor
a loan. Yet rediscounting was avoided when the maturi bills
was longer than ,the period for which funds were required; ontne other
hand, their Use as collateral was impracticable because-of the com
plerltiesof the French legislations.I/ A method was therefore worked
out f'or the "lender" to discount the bill presented by the'
lf
bbrrower",
who iIl turn rediscounted it immediately at a slightly lower interest.
rate for delivery at a laterdate, sometimes within a day or eo, some
times within a few weeks. This method, known.as taking the bille, in
"pe.n.sion" amounted to a sale and repurohaeeagreement, the "lender'"
deriving a pro:ritfrom the excess of the repurchaee
prioe.gj '.
Y Collateral on a defaulted loanoould only be eold 'after many

gj This profitwae not subjeotto income tax, a further advantage
of the Boheme.
- 56
This device was used particularly in intercourse between the banks
and the Central bank or official institutions, notably the Caisse des
Depots et Consignations. It came into prominence at a time when, as a
result of a Treasury conversion operation, the banks came into posses
sion of a large volume of 2-year Treasury notes, which the Bank of
France could not rediscount. The Caisse, which had large liquid funds
derived from deposits by savings banks, agreed totake these securities
"en pension"" Subsequently the Bank joined the Caisse as a large
.of Treasury notes; the banks also took them sometimes as inve.stment for
their liquid funds. There was in addition a market for the "pension"
of commercial bills as well as for some others (e.g. the three month
notes issued by the corporation).
:pifferent rates of interest obtained in the market for "pensions".
The Bank of France rate for Treasury notes was generally the same as
fhe official discount rate and therefore lower than the Bank's rate
for ordinary collateral loans. There 'Were also market rates for "pen
sions" of Treasury notes, generally even lower than the rate of the
Bank of France, although higher in times of stringency. Market rates
for other bills were generally slightly above the market rates for
Treasury notes.
The most characteristic money rates for December 1938, a month
of "easy" moneY,were as follows, in per cent:
Bank of France
Discound rate 2 1/2.
Ordinary collateral loans 3 1/2
Market rates
.
Day-to-day money 1 - 2
Discount-commercial acceptance 2 1/4 - 2 5/8
Discount-Treasury notes 1
3/
4 - 2 1/2
Discount-BDN 1 3/4 - 2 3/8
2
5/8 - 2 3/4
Pension-Railway bonds 2 1/2 - 2 3/4
The "carry-over" in the stock and foreign exchange markets. In
times of acute speculative which recurred frequently during
the 'twenties in France, an important "Volume of short-term funds was
invested by the banks in financing speculators on the stockmarket
and the foreign exchanges.
stock market operations are described in some detail in a special
section (aeep. ) . ' A special technique had been developed where
by banks and other persons could place funds at the disposal of spec
ualtors during the periods between the bi-weekly "settlement dates" on
-57 -,
tp.e stoyk exchange. This technique, known a.tJ the "report", 1/ involved
a cash sale of securities by the "borrower-"r--to the "lender"-; and a: si
Inultaneousagreementby the "borrower" to repurchase the securities' at
a slightly higher price, delivery and payment to be effected on the
next "settlernent date"; the technicalities through
stock exchange-brokers. 'The difference between the. sale andirepur
chase price const!tuted the "interest" .receivedby The
"report" operation was therefore identical in substance with an" 'f'en
pension" operation, but was applied in Fr()m an
economic point of view,both were tantamount to' 2/

The effective ihterestrates on "report transa:6t:iohsfluctuated
widely, according to the sitaation of themoneY"and,,s..eq'urities mar
kets .. Also rates were much higher at the CQulisse':than"atthe Parquet;
'in 1938, the average fireport" rate was around. 3:perce'nt arl&'7 per cent
at the Parquet and Coulisse, respectively. '
Specu:lation in the foreign exchange market,' a's previously noted,
was rife in France during the late 'thirties. It was nurtured by rapid
fluctuations in the exchange rate between the franc and foreign curren
cies, and the absence of exchange control restrictioIisupon exchange
operations. Many large speculators were attracted by the'profitop
portunities in the "forward" exchange market. .
.In normal times, with relatively' stable exchange rates, this
market provided very useful facilities ,whereby mmporters and eJ.C
porters could cover their exchange risks and whereby short-term fun<l.s
moved from one national market to another in response to differences
in the level of interest rates. The "forward" rate 'on foreign cur
renciesnormally went'to a small or discount, as
With the "spot" rate, depending upon whethershort;..term interest rates
in the foreign markets Were somewhdt lower or higher, respectiyely"
than in France. But in the chaotic international currency conditions
of the late 'thirties, with constantly recurr:i.ngthreats of renewed
depre.ciation of the franc, the forward rates on foreign currencies
in France often went to apremium reflecting an interest rate of as
much as'la'to 20 per cent per, annum. Speculators were to pay
such premiums, since they anticipated that by the time the forward
contract had matured, the spot ratee on foreign currencies would have
risen to even higher levels. On the other hand, banks found it a .
very lucrative business to purchase foreign exchange sp'ot and sell it
forward (a "swap" transaction), thereby trirninga handsome profit
virtually without risk. While foreign exchange was tradi
tionally the province of the private banking houses and
Y In British terminology, a "contango".
gj Aside from "report" transactions, some speculation on the stock
excharige was financed, by direct collateral loans from banks.
- 58
banks, during the speculative period all sorts of banks established
exchange departments, and many new small institutions cropped up to
'participate in this traffic.
The banks and the capital market. The banks participated in
practically all new. security issuea in France, either.ae origip.ators
of'the ':pr9jects,.as und.erwriters, or as marketing -agents for the is
sues. .
A distinction should ,be macle between.issues on behalf of t.he
French arid public bodies or foreign governments, on the
onehand,.a:qdlas'Q.es'offoreignandddmest.:t.ceoh>orat1ona on the
other.. thegase of French Government issuee, had once been
a banks, consiating of the large deposit and bus
ineers banks, wllich:underwrote and marketed such issues. By the time'
ofihe 'thirties, however, it was not customary for the French Treas
ury to organize such a syndicate, although the leading banks often
assumed quotas in new government loans, which they aimed at distrib.
uting tq their clientele.
In the case of issues by other public bodies in France and by
foreign governments, it was customary to have an underwriting syn
dicate, in which the private. banking houses., the large business
banks, and sometimes the large deposit banks participated. In this
case, as in the case of the French Government loans, there was no
need for original promotion' work, nor did the banks normally retain
any of the Underwritten securities an110nger than they had to.
The played a wider role in connection with the issuance
of corporate securities. When a projeot was originally conceived,
it, often l1appened that a group of' banks {particularly of business
banks and private banking houses} would form a so-called Syndicat
d'etudes, with a capital of a few hundred thousand or a few-million
francs, which would develop the project arid prepare specific recom
mendations for action. These Syndicats were generally dissolved
';[hen their task was accompli.shed., Sometimes, however ,they were
transformed into cnrporationsto carry out the projects, ,or were
permanently retained as research organizations and promoting in
stitutions particular field.
Oncee. project was decided upon, a corporation would beea.tab
lished, ita capitalbelng subscribed by the group of :Participating
banks. The' founding group, being the only shareholders at the
outset, 'Would appoint ab.oardof directors; it was' common experi
ence >tha;t, even if the shares were subsequently distributed to the
public, this board of directors would be more or less self-per
petuating.
then proceed to distribute the securities to
the public although it was frequently the practice of busin.ess
banks a.n.d private banking houses to retain a portion of" the secur
- 59
a continuing com.rminity of interest between them
selves and the new enterprise. In t"he usual case, there would be a
public offering of the securities at a fixed price on a certain day_
or The business banks and houses usually had
considerable "placing power" by reason of their select clientele of
wealthy investors, who would regularly participate in new issues re
comm.ended by their bank. In the case of very large projects, however,
it was often desirable to enlist the support of the large deposit
baliks (or of large regionaT. banks), which, by reason of their exten
sive branch organization, had direct access to a investing
public. In large' issues, therefore, the large depositbanks.often
participated on a straight commission basis; in such cases, they ac
cepted no underwriting responsibility, but simply received a fee for
effecting the distribution of the securities.
In the case of new issues of securities by existing enterprises,
it was to offer the new shares to the existing shareholders.
This offering was often made a a price substantially below the cur
rent market price, and shareholders who did not desire to take up
their quota of the,new shares could sell in the market their "rights"
to do so. Usually, new share issues of this kind were underwritten
by a bank, although when they were favorably priced, there was
virtually no riskj by this means, a corporation could given an easy
profit to some bank with which it was closely associated.
In connection with new security issues -which were destined for
the general public, an important step the provision of trading
facilities-in the new securities on the Bourse .. Such facilities
were obtained by application to a Bourse committee, in which case
the securities had 'to meet certain specifications (see Section"on
the stock,Exchange).
The large deposit banks and other banks which
securities to the general public maintained a special staff of
"denlarcheurs,ff, whole function was to sell' securities
of the bank, often bY,means of house-to-h6use canvassing. The
dealings. of these "demarcheurs" had once been a public
in France,.b.uta series of laws and decrees, ' commencing August,
S, 1935, strictly regulated their activities. They were not per
mitted actually to sell (or buy) securities, but merely t'o suggest
.security transactions. They could not even suggest purchasing
securities for future delivery or purohasing unlisted securities.
Also, such pars.ons could be el1.lployedonly by.banks with specified
standing, and el1.lployees themselves had to meet certain qual.
ifications (inter alia, they had to be 'of French nationality) .
.
y Alternatively the .securities might be gradually disposed' of at
cu.rrent prices, either through the banks (eapeciallythe large
depos!tbanks ). ,or o:q. the Bour,se
- 60
Non-lending
, The operations of French banks were of great variety.
Of couxse, they issued letters of credit, bankers' drafts, etc.,
rented safe deposit vaults.' Special mention is made below of certain
more significant functions. It should be noted that French banks did
not have' trust departments and did not act as administrators of estates,
executors of Wills, trustees for. trust funds, etc.y
for the accounts of customers., Bankers were induced
to grant suchguara.ntees '. for various' purposes. Some of them were al
most:routinebuslness 'anddi<1'not'lnvolve any:'signiflcant risk; for
instance ,g11arantees gf-ven to the fiscal administration (for custom'
or excise duties) or to other public bodies (for contracts etc.).
However, banks which had close eonnections with industrial corporations
sometimes their guarantee on importantfi:riancial transactions.
Some such qommi tm
t9
nts brought losses upon the banks. Generally, guaran
tees were not sho'Wn'in banks' balance were included in the
miscellaneous" assets and, liabilities.
. ,
Financial services to, secUrity issuers. Another class of non
operations is "t:iriancial services" to Governments, other
bodies, and corporations. In_contrast with the practice in
the United States, almost all French 'securities were in bearer rather
than registered form. Accordingly, was no direct contact be
tween the 'issUers of securities and the holders. 'Instead of paying
interest and dividents by check to holders, issues of 8e
curitie,s usually maintained funds at a designated bank or banks where
the of the securities could cash his interest and
coupons. Private banks, for example, held important deposits of
foreign'Governments which had issued loans in France.
, ".'
Security depos!ts. Secur!ty deposits maintal!led withba-nks "by
investors were much more developed in France than in the United
States, primarily because arranging for the presentation of interest
and dividend coupons required some care -and tUn.e. 811Ch facilities
were particularly useful to very great number of sinall investo:r's
in whose time was taken up with their job or small business
and who left to banks the management of the few securities which they
'held. From the' practice of security deposits resulted the'habit of
entrusting banks ' with the' ,fUlfillment of orders on the Bourse, and
of relying upon bank managers for general advice on investments . A
batik like the Credit Lyonnais, covering the whole country with its
branches' and having an enormous number of customers, derived from
its role as investment counsellor its great "placing power" for new
s,ecurity issues "'
Nonetheless, in a less formal way, private banking houses in
particular asslliD.edextensive responsibilities in managing the
fortunes of their wealthy clients.
- 61
III. Private banks
Private banking houses in France--i.e. those not organized incor
porate form--did not publish any balance sheets or any other information
concerning their financial situation. Consequ,ently, they can be des
crlbed only in general
A small number of the leading institutions of this type werere
ferred to as nla haute banque:; also sometimes as "lahaute banque
protestante", since aside from the Rothschilds, all of the principal
houses had. beE:)nfounded by Pi'otestant re
turned to France from exile in theeighteenth century. Theparticular
reason for.considering the "haute banque" as an entity is that there
were close' personal, and even. family relationships
ners of the different firmB in this group. Traditionally, the: fol
lowing old houses were considered as members of' the ."hautebanque":
Rothschild, Mirabaud, Hottinglier, M9.11et, DeIn?chy, de Neuf'lize',
Vernes, and Heine. During the 1930'8, there was a tendency to in
clude in th:i:s category also Lazard Freres and:phel:"haps Lubersac.
These banking houses engaged in a very wide range of activities,
even more .so than the leading private banktng houses in the United
States before the divorce of investment from commercial banking.
They generally had a very restricted number of customers including
foreign governments, large foreign and French corporations, and
wealthy French families (especially those be:J,.onging to the nobility
and possessing large-landed propertles). In most cases, the part
ners of the -families the:r1lSelvescommanded large personal fortunes,.
They had numerous foreign connections and traditionally had emppa
sized-international banking activities (especially the issuance of
foreign' securities in France) ; they had influence, although not
controlling interests, in numerous foreign banking corporations,
such as the :Banque ottomane, Banque dtAthenes, ahd the Banque
Hypotheea,lre Franco-Argentine. Even in the 'thirties, these houses
remained very active in foreign exchange and international accept
ance but they had also expanded their domestic activities.
In the domestic field, the members of the "haudebanque" held
a dominant position in most important French insurance and railway
corporations; as well as in numerous other industrial enterprises.
_These interests were based upon ownership o.fstock
or their c.ustomers, or by banking relationships -to
these corporatIons; the partners of these houses were prominent
in-the boardaof directors of these enterprises.!!
Perhaps the most .significant indication of the power of the
"haute banque" in' earlier years was their domination of the Gen
eral Council of the :Bank of France. MembershipiIi the Council was
In the 12 leading insurance corporations, 50 directors out of
129 were representatives'of the fthaute banque".
- 62
an established prerogative for most of the leading houses until the
reform of 1936. Among other firiancial interests of the "haute banque"
was the Banqlil.e de llUnion Parisienne (see page 100), which was estab
lished by the Protestant banking houses.ljand became a very important
'instrumentality of this group. Many of their industrial interests
through this institution rather than directl:y. The members
of the "haute barique" also controlled the Societe-Francaise de Reports
et de Depots (see page 113), a banking. corporation devoted primarily
to
The following paragraphs briefly review the position of the lead
ing French private banking houses.
Houses of the "haute banque"
The banking house de Rothschild Freres was still probably the
strongest among. the private banking houses before the war,
not the most active. In contrast to the London Rothschilds, they had
never engaged extensively in commercial banking. They had formerly
done much foreign business, including issuance of foreign securities,
but this had largely disappeared. For about the house
had devoted itself primarily to management of. the fortunes of its
partners, and of a restricted number of customers with long-standing
cormectionswith the bank. They were reputed to hold important a
mounts of liquid funds, and were generally important buyers of bills,
....or rather takers of "pensions" (see above, p 56).
The partners were Edouard,Robert, and' Guy de Rothschild., but
their participation the business was rather spasmodic. The actual
head of the bank was M.Rene Mayer, related to thE3 Rothsch:illls by mar
riage ..
The Rothschild family held important interests in several large
railway corporations" on the boards,of directors of which they were
prominently represented. They controlled the most French
railway (Com,pagnie du Nord), whose chairman had Roths- '
child. They also had important interests in the "Est" 'IP. L. M."
(Paris-Lyon-Medi terrannee), as well as in the Railway
.Alicante (Spain), for which they were the exclusive agent in France.
The Roths'childs also had considerable interests in such corporations
as "LeNickel" (niclel and cobalt mines in the French colony of New
Ltd. and Ste Miniere et MetallurglquedePenar
roya. (Spanish mining enterprises ) , de. Beers Ltd. (Sough African dia
mondmining),'Cie Internationale des Wagons-Lits (Pullman cars), and
numerous other corporations, particularly in the fields of public
utilities. and insurance.
M. Rene Mayer, the active head of the bank, was.a director in
The Rothschilds did not participate in the foundation of'this
bank and were not represented on its board.
- 63
inter alia the following corpora.tions: Cie Internationale des Wagons
Lita{cllairma.nof the managing committeel, ste Nati.onale des chemins
de fer,Chemin de fer du. Nord, Cie\du chemin de 'fer Mad.rid-Sa:ragos,se
AiicMte, Cie d'Assuranees 1 Unlonet, Ie Phoenix-EspagIlol (a Spanish
insurance cOr:Porst.lon), .and electrlci.t,y- companles such. as ParisIenne
de Distribution d ,etc.
....;.
The Rothacl1ild famiIywas a1a,0' .
andlly marriage. with some. foreign banking -houses:, .auph as
branch' 01 Rothschild, the' fandliesSaaapon (important,
in :B<:>mbay and Hong Kong) , Lambert {Brusselsl, etc.> .
Mirabaud' et Ciewas closely associated with the Rothschilde,
whose interest they represented in various enterprises. It was prop':'
ably the .strongest private banking firm after the Rothschilds. The'
bank was established in Paris in 1846 by descendants of.an:oldFrenoh
family. The 'generai partners were in 1938 Eugene M;irabaud,JeanBois
sonnas, Pierre Mirabaud, Rob,ert' d IEiohtal, Jacques Puerari, ReId
Boissonnaa. It 'was presumably oonneoted with the banking house Mira
baud 'f:(la at ,Ole of Geneva.
Mirabaud et Cie played an important role in. fnanoing the estab
lishInent '01' various enterprises, and subsequently in aoting as
financial agents. It seema to have had a. marked influenoe (generally .
jointly with the Rothsohilds l in suoh large oorporations a's theOom
pagnie'Algerienne (see below), Phosphates etOhemins de fer de Gafsa
(TUnisia) ,Omnium franoais de.s Petroles, Mines de Bor(Yugoslavla)-,
Cie dulloleo (copper mines in Mexico), Le Niokel, Cie Mines d.'Ousta
et de Mesloula .(Algerial, etc.. Among the pther oorporations on the
boardaof which sat repreaentativesofthis ,firm Banque otto
mane" Banque de SyrieetduGrand Liban,BanquedtAthenes,Oredit
National.(seepage 147), .Ohemin de fer de .1aProvinoe de Santa .Fe
(Argentina) ,,Mjneralset (metallurgy),
Ste du and Cie des Minerais ,de fer Magnetique.de
Mekta-El-Hadid "(iron mines iIi "Tunisia and Algeria) , Mines de .Huaron
(Peru},,' AlgarieIlIl3 de Produotsohim;tqueset d IEngrais, SteCommeroiale,
et Agrioole :du iraut-Ogooue (Frenoh Equatorial Ai"rioa), ._
PenarrOya,. Tr8.nsports. Automobiles Industriels et OOmmerciaui: ,Uslnes
a Ga.z dUllord et de l'Est ,ste Nouvelle de Glaoiersd-a' paris' and Tram
ways de Shanghaijslso the principal Frenoh and
insurance :com;panies ,although the influence of. Mirabaud i:tl these en
terprises were Thebanklri.g houaeM1rabaud was the only'
private. firm having important connections with the C.A. L. I. F .., the
Sooiete Generale affiliate for ind.ustrial loans (see page l07).
Rottinguer at Cie was established in 1790 and was among. the
f'oundersof"the :Bank of Franoe". The general pa.r:tners were: Baron
Hottingu.er, Bo'b.ertJameaon, Maurioe Hottlnguer, Count de Is Villes
treux, ,AnctreJameeon, ..Robert Hottingu.e;r,and Phillippe
These partners held directorates in: various financial.and industrial
- 64
corp0J:'l;3.tlons,such,as Union EUropeenne (see page 18 ), British-French
Dis Qount Bank, Ltd. (London), :Ba.nqli.e Ottomane, Chemin de fer duMidi,
-Petrofina(a Belgian holding company in the oil industry), Cie
Ste d'Applications hydraullques, and in several. :Lnsur":'
ancegorporations: Assurances Generales ,La Nation, Un'ion, Phenix.
R. Jameson is the director of the Comptoir
Mallet Freres et Cie was a banking house established in the 18th
oentuI"Y,'WlJ.JcA,had also participated in founding the ,Bank of Frapce.
The Ernest Mallet, Jaoques Feray, 'Baron Mallet,
Andre, Charles, and Philippe Mallet . Their cus'tomers included some /
very rich families from the French They were believed to
havethemanagemelltof the fortune of the ' d 'Orleans. They had impor
'tant 1 insurance companie's , , parti oularly/ the ,As
surenoes Jj .Theiw'e:rs also OIl the boards of ,seve:ral' 'other
oorporati0nS' such as Banque Banque Hypothecaire Franco
Hellenique, Banque Hypothecaire Franco-Argen.tine, Ominum ,Francaise des
Petroles,Cie Francaise des Petroles,Ste Centrale pour l'Industrie
Electrique; Indus. et Finane. d'Electrloite; Compagnie Marocaine;
Societe-GeIlerelf)de,Fonderie; Compagnie Generale des Eaux; Ste
plications hydrauliques; Mines de Huaron; Mines et
fonderies dePontgibaud; Ateliers et Chantiers d.e la Loire; Electri
oite Ouest Paris; Cie Tabaos de Portugal, etc.
et Gie was also a very oldba.nking house. The general
partners were: Ch. Demachy, Jules Exbrayat, HertriGra.ndet; the
last two, seemed ,to be the actualhea.ds' of the firm. The paid-up cap
ital was 10 million francs, of ,which 2 million had been oontributed
by the partners and Bmillion by 'silent partners, princi'pally
the f'amily de Wend,el (the leading metallurgical family "of
Franoe) Demachy de Cie was the only private banking house which,
together with of the largest banking corporations, acted as
finanoial agent for both firms of the family de Wend.el (Societe de
WendeletCie, Les petits fils ,de Francois de Wendel etCie). - Prob
ably it also had close' connections with Schneider-Creusot
next section on de Neuflize), for which it aotedas agent.
In 1873, it had absorbed the banking house Sel,liere, which had financed
the brothers Schneider when 'they bought, Creusot. The families
de, Wendel, Schneldf)r were all interrelated by marriage. Members of
thefinnhelddirectoratf)s in the Banque d'Athenes, Banque Hypothecaire
Franoo-Rellenique, Hydrofina' (A Belgian holding company with interests
in Rumanian electrical'companies), Petrofina, Cis' Eleotro-:Mecanique,
L'BYdro-Energle '(holding oompanyforshares of elect.rlcal' enterprises),
Ste' Hydro-Electrique des Basses Pyreriees " Energie Electriqu,e' de la
du Tarn, Electricite de Bes1ers, Forces Mot:tices de la
Vienne, Gaz de Lyon, SteCommerciale de 1 'Ouest Africain, Ste C910niale
. "
lI'T.h.ela:rgest French lnsurance corporation. There are three'inter..;
connected' corporations '"Assurances. GeIieralesftfor life 1 fire, and
accident insurance ,presided over by E. Mallet.
de Gerance et d'Etude, etc.
De Neuflize et Ciewas another old banking house which was notable
for its large commercial banking busine'ss:q.eposits ,discounts, ac
ceptances, etc. It took a leading part j.n the establishment in 1928
of the CompagnieParisienne du Reescompte. The partners were (
nier, Baron de Neuflize, J.de Neuflize, P. Girot, L.MeIlage, 1'.. Cruse,
G. Monnie:t-, J. de Neuflizewas a member of
of Schneider et Cie (Creuso.t) With Demachy etOie ()ther
banks, this firm acted as financial agents
The firm was represented on the boards of __
Francaise du Conunerce Exterieur, the Union
Banque d 'Athenes, Banque de Syrie et
Franco-Argentine, Banque Franco-Polonaise, Banque Tabacs.
de Portugal (a Portuguese holding company in the tobaqco.trade) ,Mines
et Usines de Zlnc de Silesie(Poland),MinescleHuarop.. (YQPpe:r:-,m1.,nes
in Peru), etc. - - ,
Vernes et Cie, established in 18;2, wasnots901d a
''hous e as those 1is ted hi therto The partners ,- were' Ph:LJi PPl?,t --FraIl.CPA-s:)
Pierre z' Garard, and Edouard Vernes. They had family with
the Mallets and Hottinguers. Themempers
in a considerable -number of corporations, many of Y,lhi ch. ' have aLready
been mentioned in cOImE:)ctiqn with the othe:rhouses of the "ha'Lite '
banque" : Banque Ottomane, Banque de Syrie du Liban, Compagp.:l;e Al
gerienne, Banque Hypothecaire Franco-Argentine, Br.itish-FrenchDis -
count Bank, Chemin -de ferdu Midi, CieGenerale de chemins de dans
la province de Buenos-Ayres, Air Liquide, Le Phoenix (insurance), etc.
Heineet Cie we,s established in Paris under the Second Empire,
succeeding the old banking house Fould. The family are of Jewish ori
gin (the famous German poet, H. Heine, was of the same family), but
came to' be considered members of the "banque protestante". 'The man
aging partner was Robert Bechmann; other partners were Robert-Heine,
Mme. Alfred Bachmann and Jacques Bechmann. T.b,e firm was represented
on the boards of some corporations, but on the whole seems to have
been much less influential than the other houses of the "haute
banque" . .-
Lazard Freres et Cie came recently to be considered as a member
of the "hautebanque",particularlysince the senior member
of the firm. took the place of'a partner-of a pa;r-tnerof Verneset Cie
on the General Council of the Bank of France. The firm was estab
lished about the middle of the last century'. It expanded rapidly.
during the inter-wa.r 'period, when it in the field
of internS.tional banking. The acting partners were David David-Weill,
Pierre David-Weill, and Andre ,Meyer. The last was considelZed the
aotua.lmoving force of the firm. . Lazar4 Frereswas one or/the most
,important houses dealing in foreign exchanges , and had a virtual '
monopoly in shipping gold between France.a.nd the-United States (mostly
- 66
in collaboration with J. P. Morga.n and Co. or-with the Bank of
hattan Co. The 'firm seemato have 'had only a .minority interest -in
Lazard Brothers (London), but controlled .Freres in New York.
In paris, La.zard Freres worked. 'in close connection" with Morgan' et Cie
ahdrecentlyw1thBanque de ParisetdesPays Bas. They oftena.cted
as agents for' the FrenchGovernment,for whom they negotiated 'several
loa.nain foreign countries. In1924--with the help' of the Morgan'
loan--they were instru.mental in the famous oru.shing of the speculative
attaok against the' franc. In 1935, when the largest French automobile.
firm of Citroen gotindifficulties, Lazard and the Banque de
Pariset des Pays requested by 'the French Government to pre
parea planofreorganization. Although Lazard Freres do not seem to
have taken a financial interest in the reorganized Citroen et Cie,
. they remained 'one of its financial agents.
In oollaboration with the Banque de Paris et des pays Bas and
Morgan-et Cie,LazardFreres establ:tshed, in 1938,' the Caisse Centrale
de Reescompte (see below).
The major oonneotions of Lazard freres were with international
corporations. They introduoed :1,n France the shares 9f Dutoh and
were this' company t s sole French agents. Pierre David;..We111 is a mem
berbf theboardsoftwo affiliates of the .Royal Dutch: the Mexioan'
Eagle Oil Co . and the Canadian Eagle Oil Co. They were also the sole
finanoialagent in Franoe of Astra R01D.ana (the Rumanian affiliate of
Royal Du.toh) and were represented on 'its board. In 1930 they estab
lished in Amsterdam a oompany (N.V. AI. Mj. vor Gronderediet) .whose
.aim. was to iss-uebonds and use the funds for mortgage loans and .for
loans to publi6bod1es.. The operations of the oorpora:tion remained
on a moderate soale. On June 30, 1939, thesubsoribed oapital was
'9.5 million guilders; the capital paid, 2.1 m;tllfoil; the outstanding
bonds 'amounted to 66 million guilders." .
In 1938, Lazard Freres participated--with the Banque de Paris
et des Pays Bas , the Ba.nqtle de 1 'Indochina, and the Banque Franco-
Chlnoise-.;;in the establishment of the Ste Financiers dlEntreprises
en Chine, whose purpose was the bUilding of a railway from Cheng
Nan Guan to Nanning David David-Weill was a director of "the Banque
lIy.pothecaire Franoo-Argentine, already mentioned in oonnection with
firms of the "haute banque", and of the Societe du Port de Ro
sario. A. Meyer was .on' the board 'of the cSofina (the< large Belgian
international holding company) a.ndalso on the board ofsottle French
oorporations: La Raun1.on fran'catse (insurance), Metallurgique d'
Aubrlvee etVilleput,eto.
Lazard Freres also had interests in some other French corpora
tions, such as 'Credi t Mobilier Industriel (for financing ins tallment
sales of oare) , Etabtissements Polietet, Chausaen (one of the largest
. plants for ooncreteandlime), Poliet-Chaussen Maroc (an affiliate of
the former, La 'Sol-idit francais (building works) ,etc. They were con-'
siciered the proprietors 'of "L'Informat1on", :the lareestdal1i f1nanc1al
paper.
- 67
Raoul de Lubersac et Cie is a relatively new'bank in
1922), which can, nevertheless, claim to belong to the "hautebanque"
of its pa.rticipation in the Banquede l'Union Parisiennesince
its reorganization in 1934. The partne'rs are: Alexandre Bungener
(deputycb..airma:n of the Banque de 1 'Union Parisienne) , Ernest Gutzwil
ler, Count R. de Lub&rsac. '
The firm is on the 'board of s,everal corporations in
which the Banque de l'Union Parisienne holds suchas.Banque
d 'Athanas,. de Shanghai, Petrofina, and also iil some other cor
porations.
Smaller private banking houses
The firms dealt with so far traditionally represent the aristoc
raoy of French banking. Some others were on the fringe of this
gory, and then followed a large number of smaller firms. Among other
more or less influential houses were
Odier, Bungener et Cie probably had some connections with
Lubersac at Cie. They wererepresanted in the de Reports
et de Depots and in various other corporations.
A. J. Stern et CJeparticipated in the establishment of the
Banque de Paris et de Pays Bas Maurioe stern of this firm. was a
director of several corporations: Compagnie Generale des Eaux,
CieGenerale du Gaz pour la France at ltEtranger, etc.
Worms et Cie was a relatively old firm but its operations
were for a long time confined to :Jhipbuilding and the, coa.l tra,de.
Its financial activities were a more recent development. The
partners were Hyppoli the Wo:ttms, Miohel Gaudchaux, and Jacques
Barnaud. H. Worms was a director, of the Ste Franoaised'Entre
prisesde dragages et de,travauxpublics, a'corporation for fi
nancing public works, particularly in Indo-China and ,in the Bal
kans. J. Barnaudwas a director in ,Ste Lyonnaise des, Eaux et de
I '.Eclairage. Barnaud, together with two officers Worms et Cie,
Leroy-Ladru.e andPU..cl1eau, were among the leading French "btali
tarianS"Cl' ,
.DanielDreyfus et Cie was a relatively new banking house en
joying connections with the Rothsab.1Ids. They were represented
on the boards of Chargeurs Reunis ishipping lines), Cie de
'gation Sud-Atlantique, Electro-Cable, Glilet-Thaon, etc.
'Lou1s-jI)reyfuset Cie was known as ,one of the, largest firms
in the wheat trade. The considerable wealth of the de
rived from this trade brought them into the" banking "business. in
a limited way.
Goudchaux et Cie was also So private bank'with close indus
- 68
trial connectioils. They were represented on the boards of--or
assoc
1
.ated wi th--various industrial corporations of medium or
moderate size,. such as: 'Forges et Acleries du Nord, Cie Indus
trlelledeMateriel de Transport, Cie Generale des Automobiles
postales,Energie Electrique de l'Ouest de la France, etc.
Seligman 'et Cie was a relatively old firm (under
names ) which was, engaged principally in the internationalfieId'
(foreign exchanges, arbitrage,etc.). The partners were Robert
Meyer,Rola:nd Meyer,Francois Michel; they ,had connections with
Seligman Brothers (London) and J. A.W. Seligman and Co. (New
'York).
Lehideux et Cie was a private bank which because of fts
special form of organization (co-partnership on shares) had to
issue a yearly balance sheet. The capital was 20 million francs
and deposits 106 million at the end of 193.8. Its importance was
greater than would be indicated by these figures,however; it
was represented on the boards of numerous very large corporations,
pa.rticularly ba.nks, apparently because of the social position of
its. chairman, Roger Lehideux. He was for many years the chairman
of the Union Syndicate des Banquiers de Paris et de laProvince;
he was also chairman of the Banque Nationale Francaiae du Com
merceExterieur, director of the Credit National, of the Credit
Lyonnais, of the Banque de Paris et des Pays Bas, of the Banque
de Syrie,et du Liban, of La France (insurance), deputy chairman
of the Cie. Generale d 'Electrici te, etc. His brothers. also sat
on various boards of directors.
L. Hirsch et Cie, J. Joire et Cie, Maurice Reuff et Cie, and
R.Varin-Bernier et, Cie, are other private banking houses.
IV. The "Etablissements de credit"
Whereas the private banking houses described in the preceding sec
tion were immensely influential in France, the large banks
(Etablissementsde credit") had become far larger institutions. Aside
'from the savings banks and other public institutions, they were the
great repositories of funds held by the pUblic. They had a Widespread
branoh organization and were large-scale distributors of securities.
There were six major banks which fell this category.:
Credit Lyonnais
ComptoirNational du cEscompte d'Esconlpte
tl
)
Societe Generale pour favoriser le development du commerce et de
l'industrie en France ("Societe Generale")
..Societe Generale du Credit Industriel et Commercial {Credit Indus
triel")
Credit Commercial de France ("Credit Commercial")
Banque Nationale pour leCommerce et l'Industrie ("B. N. C. I.")
Of these six banks, the Credit Lyonnaiswas easily the largest at
the end of 1938 and it, together,with"tp,e Generale and the
Comptoir dfEscompte, made up the "big three" holding 7.5 per cent of the
total deposits of thE} six "Etablissementsde oredit" andover 40 per
oents of the total. deposits of all Frenoh "Qanking companies other than
public institutions. The big three were very simi-lar inthe:irorgani-.
zation and activities, whereas the other three showed more individual
differences.
Administrati on
The shares representing thecapital of the large deposit,. blanks
were very widely held. As is true elsewhere, the majority of the
shareholdersp.ad very little voice in the .management of the banks. TlJ,e
attendance of shareholders at the annual meetings was very desultory,
and as a result, the boards of directors Were largely self-perpetuating
bofries. .
The board of directors ("conseil d'Administration") ofa. large
deposit bank was usually made up of various specific categoriesof.dl
reotors 11- There were usually a certain number of businessmen rep..
resenting chiefly the large shareholders. There were members who had
worked their way up through the bank's organization, and who brought
technical knowledge to the sessions of the board. ' Each board in the
larger banks included former high officials of the or the Bank
of France who were useful for their experience in management of large
organizations and their contacts witngovernment circles g/. Finally,
the boards of the largest banks generally 'included one or two titled
persons or former diplomats, generally chosen for their social pres
tige or political connections. '
Directors of the large deposit banks commonly held numerous di
rectorships in other financial or industrial corporations . No general
izations are possible, however, as to whether these directors repre- .
sented either the interest in the other corporations or.
interest of other corporations in the bank. Suoh interconnections were
usually e?idenced by the variousdireotorshipsheld by directors,' of,
private banking houses or business banks, but in the case of. large <ie7
posit banks, the directors were. often selected merely because of their
personal connections, family interests, etc.
The French equivalent of "direotor" is "administrateur
U
; a."di
recteur
i
' in France c.orresponds to a "manager" in the United States.
gJ Former government officials also frequently found places in the
managing staffs of the banks.
- 70
In most cases, the directors of a large deposit bank attended on
ly the periodic meetings of the board and played no role in the day
to-day operations of the bank. Active direction was usually in the
hands of two or three directors, generally the president and. one or
two vice presidents elected by the board. In some banks, the board
delegated .enecf its members, as "administrateur delegue" {managing
director), who ,was specifically incl;1arge of supervising the manage
me.nt. The management function J?roper, however, was customarily in the
hands of a "dlrecteur general" (general manager), assisted by a number
of "directellrs" (managers). .
Corporation law required that there ,one or more "oom
missaires auxcomptes" in each corporation, chosen directLY by the
shareholders. They were supposed to maintain a continuous audit of
the bank's accounts and had the right to calla meeting of the share
holaera whenever they deemed it necessary Inpre.ctice, however, the II
insignificant role of the shareholders made this a stereotyped pro
cedure; the Itcommissaires" were chosen by the shareholders' meeting
upon the nomination of the board and had a little independence of ac
tion. Serving as a. "commissaire" was frequently the to
becoming a director. The charter of same of the older banks before
the enactment of the corporation law of 1867 required that the bank
have another type of independent body representing the shareholders'
interests, a "cdmite decenaeurs". Because of the legal difficulties"
Inchang:'ngthe charters, these banks still retained this body, as
well as the "cottmlissaires au comptes", but none of these officials
than a nominal role in the banke' affairslili.
The management of the large deposit banks was highly centralized
despite their Widespread net of branch 'offices. There were r6g1.onal
managers with limited powers of independant aotion, but the bra.nch
managers usually had to consult the regional managers or hea,dOffice
on any important question, particula.rlyregarding any loans exceeding
a relatively small figure.. '
11 A decree of August 8, 1935 requIred alloompanies to choose at
least one of theirt'(oomm-issaires" from a panel of candidates
established in each region bya special board.
- 71 -
Earni assets of the leadi at end of 1 8
in r:niliions
Bills Se-
(2) ,
(3) (4)
and
curi,-. as

as ;, as

Total Treasury ties of of of
Assets
notes'
(1)
(1) . (1)
(1 ) (2) (3) (4) (5) (6) (7)
Credit Lyonnais 14,480 9,109 2,752 4/ 62 19
Societe-Generale 11,433 5,820 2,280
52 51
20 0.5
Comptoird'Escompte
9;7954;963 1/2,727 7
51
28 0.1
B.N.C.I. 5,043 2,710 745
18 54 15
' 0.3"
Credit Commeroial
3,487 1,862 656 40
53
19 '1.1
Credit Industriel
2,455 L,4?3 4-14 gj161
57
6.6 '
11
46,693 25,887 9,574
282
55
21 6.. 0
jJ Including' an exceptionally large amount of bills in 'course,
leotion. (see 76).
gj Inolud.ing shares of affiliated banks amounting to 109milli,onfrancs.
All of these banks had over half-their assets in theformofoom
meroial and 'Treasury bills (62 per oent in the 'case of the Credit Lyon
nais). Pref:iumably.aroung half of this amount was in Treasury The
readyacces8 to the Bank of Franoe for redisoountsma.de this por,tfol.io
extremely liquid. Another 15 - 20 per oent 11 of total assets was 'held
in loans and overdrafts, a term used broadly to cover loans on colla
teral, loans on current account, billa in course of oollection, contin
gent olaims for acoeptanoes, eto. The'bulk of these loans was made to
industry and trade, direotly or through finano.ial enterprises.. In gen
eral, they' were also of a liquid oharacter
dating") , although it is likely that this principle enunoiatedby the
bank:swassubjeot to many exceptions. Espeoiallyindealing with large
oorporations,' the banks made loans for essentially: long-te,rm. purposes
which were subsequently repaid from the proceeds of issues.
Still, most of their long-termindustrialfinanoing was left to affili...;
ated oorporations whioh were in a position to assume greater risks.
The relatively very sma.llholdingsof securities and partioipa
tions included, as previously noted, virtually no Government bonds but
almost entirely the shares of affili-ates and securities aoquiredd'tlring
underwri ting and distributing operations. Again there was a distinct
tendenoy to avoid any serious risk-taking, the Credit and Comp
toir d'Escomptebeing espeoially oonservative in this regard 'Security
issues weI'e handled by the banks largely on a oonnnission basis, a task
for wh1.ch theirbranoh organization admirably equipped them. Ocoasional
partioipation in syndioates oonfined to issueS
!J 2S'per oent for one bank beoause of exoeptional oircumstances.
- 12
wi tb. a well-assured market. 'rhe,relatively smallslz6 of; s:e',ourfties
and participations in the balance sheets may,'however,be s'omeviha.t
m.1sleading;there is much evi.d.ence to indicate that ttla!1y banks - and
.',' ... . - ,-"...
especially the Credit Lyonnais,-greatly undervalued tl:l.eir assets in
these categories.' The effect was to create hidden which
might be drawn upon in cas'eof need without arousing public concern.

The following pages give a brief chara.cterization of each of the
six large depos:Lt' banks.
Credit Lyonnais
The -Credit Ly'onnais was the giant of French banking, ,holding about
l2.5b1lliopfrancs in deposits at the end of 1938, or about one-sixth
of the total deposits held by 'French banks other than pilblic
tions ..
The bank started in 1863 at Lyons as a rather modest institution,
local character. It soon began opening branches and expanding the
scope of its operations. Under an aggress'ive- management empht?osiiing
deposit business and short-term commercial pperations, it was already
in 1914 the largest French deposit bank. The lesson of' the "Bontoux
crisis" (see'p.5 ) induced it to refrain from risky ventures in indus
trial financing, although as itsbranoh organization gre;w, it became an
admirablemeoha.nismfor distributing security +ssues., The bank ex
pandednot so much'by absorbing local banks as by opening new offices
which entered into sharp competition with existing establishments,. It
thereby incurred the ill-will of many local banks and their clientele.
By the end of 1938, the Credit Lyonnais had 1,350'offices (includ
ing the temporary or seaaonalagencies) scattered throughout France, 13
branches in Algeria, 2in Morocco, 1 in-Tunisia. There were a-lso
branohes in the following foreign countr,ies: England (London, 2agen
cles ),Belgium (Antw,erp, B:russels, Ghent) , Switzerland (Geneva), Spain
(Barcelona, Madrid, Sevilla), Egypt Port-Said; Ismalia),
Luxemburg, Monte Carlo. The Credit Franco-Portugais, a. subsidiary of
the Credit Lyonnais, was established atti'sbon arid Oporto.
The Credit Lyonnals was particularly reticent about its operations;
'its annual reports and balance sheets were brief and rather unlnforma
tiveo It was sUbject to much public criticism on this account, especial
ly because of its' dominant position. Iits balance sheet for the end of
1938 was as follows:
'- 73
'Crecl!tLyonnais
sheet floS of Deoember 1 "8
In millions, o'f francs,)
Liabilities,
.
Cash reserves 1,145 De'mand depoei ts 5,464
Bankers' balances 1,115 ,Currentaooounts 7,022
Comm.eroialportfolio Items inprooes's of
and Treasury bills 9,109 collection 274
Collateral loans Acceptances 11 313
'and contango 308 Certificates o.f (leposit 54
Current,accounts (loans)
2,758
Contra itemsandmiso. ,6
'Seem!'ities
3
Ifrofits
116
, Contra. items and mtsc. 6 SUrplus 800
'Buildings
35
Capital paid in 400
Total . 14,480 Total ....\.,.11+'i480
!f Counterpart under assets included in "ou.rrent acoounts (loans)".
Profit and Loss 8tatement
(Millions of franos)'
i
-Debit Credit
/
I
'Shareholders' dividend 80.0 : Undivided prqfits,
Dire.ctors' fees ("tantiemes
n
) 3.7 (from, 1937) 27.6
Profits carried forward 32.2 Netprofi t' of 1938: '(
General'business 74.8
Seourities 8.9
Buildings 88.3
rotal 115.9 Total
1159
In addition to haVing the largest deposits of any Frenchdetosit
bank, the Credit Lyonnais also had the largeetcapitalandsuplus,ag
gregating 1,200 million francs or nearly 10 per cent of de'posit!? Pre
sumably it had. additional hidden reserves, as indicat9d by the fact
that revenue fromnsecurities" in 1938 amounted to nearly three times
:the book value" of this asset; even the return of the sta;ted value of
buildingsanI.ounted to 13 'per cent. The seourities protfolio included
sha.res of two corporations for industrial loans affiliated with the
Cred.it Lyonnais and the Comptoir dtEscompte, the OFINA
(see p.ol06); also shares of the Credit Franco-Portugais, a subsidiary
in Portugal, of the Societe 'Fonciere Lyonnaise, and ofa few other: com
panies.
lJ:.'h,e capital oonsisted of 500 francs each of
whfoh300,000 had: been issued in 1929 a;taprioe of 2000 francs. The
bank's management, as part of its prog:6a.m for building up the prestige
74
of the institution, adhered toa rigid policy of stabilizing aividends
and, even reported profits From 1929 through 19:;8 net reported pro
range,d eachyeal" between 82 and 88 million francs and the annual
ciiv1dendwa.s lOOi'rancsper share throughout this decade This arti
e.ocount1nsaga.fn indiea.tes the existence or' hidden reserves.
't'hemarket. price of the bank's shares ranged between 1,250 .and 1,860
during 1938. .
The' particular emph,asis placed upon liqUidity by the management
of the Credit Lyonnais is apparent in the balance sheet. Not only
were the assets predominantly of a short-term. character,but cash re
serves (vault cash and ba.lances with the Bank of France) plus balances
with other banks were equivalent to 18 per cent of deposit liabili- .
ties. Of course, in part this exceptionally liquid position was due
to the fact that thelndustrialfinancins whfch the bank might have
done directly was allocated to the affiliated corporations noted' above
The members of the board of of the Credit Lyonnais in
19:;8 were:
(1) Baron Brincard, president, a son-in-law of H.' Germain, the.
long-time leader of the bank. He was also on the board of numerous
other oorporations including the Banque ,d 1 'Algerie, Banque de 1 'In
do-Chine, Credit Foncier Egyptien, P.L.M. (railway), Forges de
lion, Lyonna1sedes Eaux et de l'Eclairage, Ste Fonciere Lyonnaise,
Union de Credit al'Industrie Nationale, etc.;
(2) C. Moret, vi ce president, former governor of the Bank of
France; he 'was apparently the actual administrative head the bank;
(:;)P. Platet, also vice president, important industrialist of
Lyon;
(4) E. well-lrnown head of Creusot;
(5) Count de Vogue, a son-in-law of Baron Brincard and "regent"
of the Bank of France until 19:;6, director of Gaz et Electricite de
Marse'ille,Foncierede Trans porte , La Providence, etc!.;
(6) Ch. Gillet, another important industrialist from Lyon;
(7) R. Leh1deux, of the private banking house I.ehideux et Cie
(see p.67 );,
(8) L. Rolland d'Estape, director of Cie Generale d'Electricite,
CieLorraine. d'Electricite, L'Electricite de'Marseille, CiesReup.ies
de Gaz et d'Electricite, Ste de Gaz de Paris, Gaz et Electricite de
Marseille, L'Air Liquide, Cie Francais6 des Petroles, etc.;
(9) P. Laroze, formerly offlcialat the Oonseil d'Etat and
Governor of the Credit Foncier, president of the Metropolitan (Paris
subway) and of the Societe d'Electricite de Paris ,director ofCredit
Foncier, Credi t NationaL, Banque de 1 'Indochine, P. L. M. (railway),
etc. ;
(10) P.Tira.rd, former counciller at the Conseild 'Etat,. presi
dent of, the Chemin de fer de 'Assurances contre
les accidents, Ste --Hydro-Electrique de Midi, -and Voles ferries des .
Landes; director of the Banque de l'Alget"ie, Cie Francaise des Metaux,
Mines, Fonderies et Forges dtAlais, Froges et Camargue, etc.;
(11) , G Goy, of the Banque Francaiseet Italierme
pour I 'Amerique duaud, and L'Abeilie (three insurance, companies);
depu1!y President of the P. L.M. (railway) and, of theG,ie Parisi_enne
de, distrIbution d'Electricite; director of the Ste FrancaisedeTraIis
et Entrepotsfrigorifiques; "
(12) E. Hannetin, a former' eminent lawyer, director of Est rail:
way, Mines d ',Anzin, Haut-Fournaux de Denain et d tAnzin, 'Lyonnaise des
Eaux et de ItEclairage, etc.;
(13) R. Piaton, president of Cie Electro' Mecanique""deputy
President of Alaie, Froges et Camargue, director of Union pour-lJlri
duatrieet ItElectricite, EnergieElectrique du Littoral Mediteran
neen, etc.
Comptoir d'Escompte
The Comptor National d'Escompte, though ,only the third largest
French deposit bank, was the oldest one and the closet akin' to the
CreditLyonnals in 'its ',banking practices. It was founded inPar-is in
1848, with the temporary.assistance of public authorities, top.rovide
,emergency financing just after the "February Revolution" . __As are...
suIt of an excessively rapid growth and indiscreet lendingpoll-eies,
it became the vi-ctim of.a financial panic in 1889. After being re
organized and rehabilitated with the aid of an officially-inspired
banking syndicate" the bank resumed business but thereafter pursued I
the same conservative commercial banking policies which werecharac
terletic of the Credit Lyonnais.
At the end of 1938, the Comptoird'Escompte had 504, offices in
France, 4 8.gencleein North Africa (Tunis, Bizerte , Sousse, Sfax), 8
inMadagascar,and one in each' of the following foreign centerA Lon
don, Liverpool, Brussels, Monte-Carlo, Alexandria, Cairo, Port-Said,
Iema.ila, Bombay, Melbourne', Sydney. The bank also had, a permanent
representative at New, York and another at Buenos Aires. Together with
the Guaranty Trust Company of New York and the National Bank of
Boston, the Comptoir d"Escompte owned the capital of the French Ameri
can Banking Co., incorporated in New, York in 1919. In general its I
foreignraIniflcations were more important. than those ,of a.n.y other
depoe! t ,.bank. '
- 76
The balance sheet of the Comptoir d'Escompte as ,of December 31,
1938 (slightly condensed) is given below:
C0!1lptolrNational d 'Escompte
Sheet as, of Deceniber 31
in miIIione of francs
Assets Liabilities
Cash reserve
i ,172Checklfig accounts 4,782
:Ba.nkers'balances 682 Current accounts '
3,781
Bfl1sandTreasury notes 4,963 Certificates of 'deposit 38
'CbrTespondertts 830 Acoeptances 2b4
:Lqa.ns .. '..... .... .'!;,i
1 ,408 Mis cell8.rie()usand
1 contra. .': it?nis' >Cc "
94
'4"",'
:")Jartic.ipations . " 7, ,
'Oolla.te:ra.i::loana
'448('"
Debtors per acceptances 205, Capital
Agsnoies out;side Europe '
55
Miscellaneous and contra items 24
lTemises
15
Total
9,795 Total .. 9,795 io
PrQfi t and Loss Statement
, Debit
Credit,
Shareholders' diVidend 40.0
Di!'ectbrs' fees 0.9
To the surplUS 2.0
Dividend of "founders" shares 0.5
Profits carrie,dover (for 1.939)3. 8
Total .- 0 il .47.3
.
Undi vided profi t (from 1937)
Net profit for 1938
G-eneral business 317
Securities :arid
participations 1.G
13tiildiugs .' 0 .7
'Tota.l . .; / ..
7.8
39.4
473
The capltaland'reportedrsseNes oft:ne ba.nk
tial, amounting to nearly 10 per cent :dfdeposits .,Again .. itma.ybe
assumed that.the:re were large. hi,dden rese:r-ves, 'especially in. the . items
for securities andpart:1oipa':tions. Income from these 'assets in 1938 ,
was '14 --hot too .excessive.. s.. flgu!'e . ..:
,but the hadinte:rests. may not have dis
p:roftts. As in the ca.se of the GreditLyonnais,
tb,e securitiesportfblio of the Compto!!' d 'Eacompte incll.ldedshs.res of
two .corporations for industrial loa.ris founded by these two banks, the
UCINAand theOFINA, (see p.l06).
The capital of the bank consisted of '8bO,OOO shares of 500 francs
each, of which 300,000 had beeIl issued in 1929 atapriceofl,500
francs. The Comptoir d'Escompte, like the Credit' :4Yonnais, pursued a
policy of dividend stabilization, though slightly less rigidly than the
- 77
latter. Dividends,were fixed at 60 fran,cs in 1931738, ex
cept in 1936, when only. 40 w1.:l,s.P1.:l.:id. The IIlarketprice'of the
bank's shares ranged between 62Q and 949 f:rancs per share during 1938.
TP.e. general aspect of is very similar
to t of the ,Credit LyonnaJs. Ag.in tAe of a .
s:b.ort"'!term, character and cashree;rves witl1
the Bapk of France) plus witA equivalent to
as. much as 21 cent of deposit liapilities. As in the of the
Credit Lyonnais, industriE,l.l finaIlcing in which tl1e COIP.ptQir.d':J!;sQPmpte
wa.s :inters ted WliS handled througl1 the UClNA and OFINA. The item "cor
:tIl the statement rela-t:1:velyl.a;rge pe
CliUSE:l,withi OVEtrSe{3.s, co:nneotions, it had an exceptional
ly large a.mount of bilJ.,s incou:pse Of,. collection on any date ..
For ll1J3,.:p.y years, the board of dire.ctors of the Comptoird'Eficompte
was by P. Boyer, Who died in October'1939; he was also
pres ident of'OFlNA andUClNA, a:p.q. cl;i.rector of Banque de 1 'Algerie,
Ba.n,que de 1 'Indo Chine, Banque Industrielle de l'Afrique duNord,
Credit Foncier Egyptien, Societe Genera.'Le POur1'Industrie Electrique,
Taba.c de Portugal, etc. At the end of 1939, the following were mem
. bers of the board: /
(1) A. CelieI', president, former vice president; before
entering the Comptoir, he was a high official of the Treasury.
He Was OIl the board of nu.merOU!=l corpo:t'atibna: Credit NatiQnal;
Be.nq\le de 1 'Indochine" Cie GePer&le du. Union des Mines;/
Ste c1'Eclairage/Chauffage, Force Motrice; OFINA, UCINA,etc;
(2) p. Farnier, vice president, also a former official
the Treasury and deputy govern-or of the Bank of Fra.nce. He held
no other important directorships but was rather a technician di
recting the acttvities oftheComptoir(he had been
manager of the bank);
(3) P.Erne
13
t-Picarli,form.er secretary-general and then
deputy governor of the Bank of France; he was director of Banque
de l' Algerie, Banque Industrielle de. l' Afrique Q.u Nord" Forges
et Chantiers de 180 Mediterranee, etc.;
(4) R.. Jameson, a partner of tlle private banlcipg house
Hottinguer and Co. (see p. 63);
(5) E. Sommier (from a family having important interests
in the sugar industry), director of the Est railway, Mines
0. 'Anzin, Docks. et du H.a:vre, etc.;
. (6) J. Naud, president of Comptoir de Credit a
Paris 1/ and director of Rauts forges et aciers de
!/ASInall bariking:corporation, formerly & private banking hOUSe of
the family Naud.
78 ...
Denain etd'Anzin, Mines et fonderies de Pontgibaud, Ateliers et
Chantiera de France, Chemins de fer de l'Indochine etduYunnan,
etc.;
(7) M. LewandoD.ski, genera.l of the bank who had
made his career ther,e; he was also direotor of the Metropolitan
(Paris subway ) ,Chemin de fer Damas -Hamat at- prelongements, .;
Chemins deferPortugais,r etc.
Sooiete Generale
!
The ,Societe Genera.le paur favoriser Ie ,developpement,duCommeroe
et de l' industrie en France was the seoond largest "Etabtissement de
oredit" ,in France and also one of the oldest., Foundediri 1864 to
oompete against the monopolistic position of the Credit Mobilier and
p.atterned after the, Belgian Societe-Generale,itwas to engage in both
commeroialand investment banking, withpartiaular emphasis on the
1a'tter. The Comptoir' d'Escompte, restriotedat that time by its
oharter to purely commercial its formation by
marketing the shares of the Societe Generale. The new bank grew ra-,
pidly,participatingextensively in indnstrialfinancingand the is
suance of foreign seauri ties; some offts -ventures turned out unhap
pily, such as "guano" loan to Pe'rn. '
/
In 1905 closer colla.borationwas initiated with a leadingbusi
ness bank, the Banque de Paris ,'. et dasPay-Bas; thereafter the two in.,..
stitutions had one, or more directors in oonnnon (see p. 94,). Under
this arrangement , the Ban,quedesPays :Ba.sinitiated industrial financ
ing, and the Societe' Generale distributed the securities through the
network of branches which it had established. The bank's own opera
.' tiona tended. more and more towardtha straight commercial bankin,g
'oha.ra.oteris'tic of the other members of the "big threel1!. It/ continued,
however, occasionally to underwrite security issues, while the Credit
Lyonnais and Comptoir Nationale handled sales of securities almost
entirely on a commission basis. In 1938, the Sooiete Generale still
had'relatively close connections with industry, particularly with met
'al1urgical and electrical corporations,andmany industrialists sat
on its board. Another indication of its interst in industrial fir.
:n,a.ncing was the creation in 1928 under its leadership of the Societe
-de Gredi tal' Industrie Francaise - CALIF (see p. 107).
In'1938, the Societe Generale had about 1,300 branches (in
oluding temporary and seasonal offi.qes) sca.ttered thrQughout France.
It a.lso had branches in Africa, at A:lgiers, Bone, Constantine, Mos
taganem, Ora.n, Tunis, and Casablanca, a.s well as an agency in London.
Moreover, there were several important banking organizations
closely affiliated with the Societe Generale. It had a controlling
interest in the Ste Francaise de Banque et de Depots, established in
1898, and operating'largely in Belgium at Brussels, Antwerp,
Charleroi, Ostende, land also in London). This bank had' in 1938 a
- 79
paid-in capltaland';suirPlus of 49 ,millionanddeposits of' 2l4mill ion
, .Another aff!1fate was the ;Sooiete >Gener1301e ,:de 1Banqu
i
e pour ,II ,
Etranger et les Colonies (branohesat'Valenoiar lBaroelona,:Ari:tsterdam
-- oapital, 25 million) .'AFreneha.ffi11atefor'ordinary"ba.nking -was
,the' Alsacienne de', Banque, "Wi'th '.'5, bra.nchea 'in AlJaace, '.','
in Luxemburg . (Luxemburg, Esch
(Cologne, Idar, "Kehl), and 1 inSwltze:rland' (zurich).. At the:eIld'Gf
1938jthe capital and surplUS of
liOD.;t:q.e'deposita, to 965 million francs. The SO,clete Genera;l:eal's'o'
controlled' a"financial' a.ffilia.tei'the-. '.1
11
-'
at de, Valeurs de banque, which,handledmoat 'Of itspartte1
pa.tiona in, indus tria.1 and other corporations The .. CALtFObmpleted the
list of affiliated banking organizations.
The balance'sheet of'the Societe Generale as of December'31,
is 'given below: '
Societe Generale'
Bala.ncE' of December "31j 1938":
(millions of franes )
Assets Liabiiitiee
Cash reserves 1,350 ' Checldngaccourits'

Balanees with bankers Current,aocounts
andoorrespondents, 1,163 Time' deposits . 265'
Bills and Treaaury notes '5,820 AcceJ?te.noesY 154
CouponS to be 126 Oa'pital 625
Conta:i:lgoes 32 SurplUs '390
Guaranteed loans 333 IJivideDds unclaimed
5
Loana and overdrafts 2,068 " Co:nt:ra:itema, etc. 23Q'_
S&Ol1rities 31 Profits 72
Partioipations 21
71
Contra. items, etc. li4
SharelIolders 1 liabilities, 302'
Total 11,433 11,433
11 Counterpa.rt' under'asse'ts included in-loans and' overdrafts n.
Profit and Loss Statement'
Debit Credit'.
Toshareb.o1dare',5per cent Undivided profits
onthecap1tal paId in
Directors "fees
Dividends
16.'1.
2.6
34.4
(from 1937)
N$tprofit'of 1938
Generalbuslness 48.4
Profits oarrled 'foMlard. 18.9 Secntrities' 2.6
lJ'o'tal 72'.0
lhild1nga
Total
90' .
'- 80
The nominal capital of the Societe Generale was larger than :tnat
of arry other French bank, but only a little more than half was paid in,
the unpaid portionbel1lg'lncluded in the barik
1
s assets as a claim on
theahareholder.s. The reportedaurpl... was Bubatantialbut as in the
oaseof the qther'-banka there ,is reason to believe that the balance
sheet ooncealed hidden reserves . Th&1tema in the, balance sheet for
securities" and "participations" were ,larger than in the case of the
other deposit banks, but, lnview of the extensive-activity of the So
ciete Generale inth1s fieid,probably stillU;Iiderstated
the value of thes"eassets. These items included,of course, shares of
tAe bank
1
s variousaffiliateel1steda."b.0ve (notably CALIF) and also
shares of someinvea tment holding oompanies.
The nominal capital of the bankwa,s represented by 1,250,000
shares of 500 francs eaoh. About40,OOO'shares were entirely paid up
andltere in bearer form ("liberated" according to French.terminology);
the other shares were only half paid and were 'registered in the name
of the owner. The net profit, after allocations to reserve, etc., was
first used to give all shareholders 5,percent on' the, paid-up amount
of their shares; was ,dlstriputed. among all shares.
The dividend on the "liberated" shares was therefore alwaysI2.5 francs
larger than that on the non-liberated shares The dividend of the lat
ter wae stabilized at 40 francs in t936-38;' the market price of these
shares ranged between 64o and',,' 846 during 1938.
As in the case of. the other larger deposit banks, the balance
sheet of.theSooieteGenerale ,evidences great liqUidity. Commercial
and Treasury bills formed by far the major part o,f the' productive
sets,and'the case posl tion (including balances with banks) amounted
to asmu.chas25 per oentof all deposita . Loa.ns and overdrafts, a
item on the asset'side,may have. been of a more "11bera1" .
character than in the case'of the other members oftha "big three",
at leas,t whe'n they 'Were, granted to enterprises with which the Societe
Generale was associated.
At the end of' 1938, the board of directors of the Societe Gener
ale included the following members:
(1) A. Homberg, honorary president, of
the Treasury and .' for many years general manager of the bank. He
was ontheb0B4rd of a fe'li ,other oorporations; Banque de l' Indo
China, .Banque Franco-Polonaise, Cie Interri.ationale deWagone
Lits, etc.;
(2) J. Simon,presldent of the board, also. a Treasury of
ficial before becoming manager and latar director of the So
ciete 1ierepreae,nted the bank inseV6ral large cor
porationS: Credit NatiOnal; Banque de
Fen'cier Egyptian, Usines aGaz du.Nord etduSu:d, Union Houil,
liereet.Electrique, etc. He was also chairman of two affiliated
- 81
banks: CALIF and Ste Francaise de l3anque et de Depots;
(3) Th. Laurent, one of the leading French industria.lists,
particularly connected with the metallurgical industry. He was
president of Forges et Acieries de laMarineetd'Homecourt (one
of the largest metallurgical enterprises in France), SteLorraine
des Acieries de Rombas (a lesser, yet large,meta1-lurgical work),
Charbonnages de Faulquemont (a large coal mine in the East),
Mines d'Anderny-Chevillon (a'small ore mine), Cie Francaisede
Materiel de Chemin de fer, Ateliers et Chantiers de Frances etc.
He vice president of EnergieEJ..ectrique de la Basse-lsere,
Constructions Mecaniques Procedes Sulzer, and of CALIF" Rewas
director of d' Anzin, Etablissemen'ts Illihlmann, Forges et
Acieries du Nord et de 1'Est, Banque des Pays du Nord, etc.;
{4} P. Nicoli, pres;tdent of the Acieries de Micheville and
director in several other corporations, some of which have been
named in conneotion with Th. Laurent,;
(5) Ch. Dubreuil, although a former mariager of the bank"
was connected chiefly with metallurgical works;
(6) _ G. Lemarquis, vice president, formerly connected with
the Ministry of Justice, director of the Chemin de fer de IS.
province de ]3uenos-Ayres,Chemin de fer de l'Indo-Chine, Cie
Generale d'Electricite;'qsines Chemiqu6s Rhone-Poulenc, etc;
(7) P. de Mouy, another vice prea ident and former manager
of the director of the Acie::ries du Nord, CALIF, etc.;
(8) H. Poirier, also a former manager of the bank, direc
tor of the Banque Nationale Francaisedu Connnerce Exterieur,
Banque Frari.caise et Italienne pour l'Amerique du SUd, Banque
Franco-Chinoise, ste Centrale pour lea Industries Ele'ctriquea,
Ste Algerienne' d'Eclairage et de lforce,etc.;
(9) E. Taffineau, f.orme:r1y secretary of the board, di
rector of Gaz de .I\Yon, Lorraine d Electric1te, Es t-Lumiere ,
etc. ;
(10) Ph. Crozier, former director of the
:Banque des Pays de 1 'Europe Centrale, Banque Franco-Japonaise,
Cie Franco-Eapagnole du Chemin de fer Tanger-Fez, CieGenerale
Marocaine, Cie Francaise des Phosphates d'Ocleanie, etc.;
(11) T. C. Charpentier, formerly secretary of embassy,
director of the Cie Generale des Colonies, and of an.insurance
corporation, La Conservateur;
-
(12) A. de Fourtou, former official at the Cour des
- 82 -
Comptes 1/, director' of the,' Metropo1itain (Paris subway); the
BanqueFranco-Japonaise, etc.;
(13)' G. Bouillat,director. of the Chemin fer de Rosario
a. Puerto-Be19rano, 'the, Generale Alsacienne de Banque
(one of the bank'saffiliates ), etc 0 ;
(14) G. appointed 1938, president of La Pre
voyance (three insurance. companies) j director of the Credit
Foncier'deFranoe, of Union Industrielle de Credit pour la. Re
construction.
The Cred;lt. Indus trif3l
The Societe Generale de Credi t was sixth
among the large de.pos it, .banks ,. if rankedaecording to i tsown deposits,
'btlt fourth if the deposits of its banking affiliates in the provinces
were added. 'It was founded in 1859 (the second oldest large deposit
bank) to undertake banking operatio.ns and "risk-leas". in;..
vestmant business.. Its distinctive character was established under A..
de Monplanet, its president. from 1894 to 1927. A former
official, he was very conservative but a good organizer. Uhder his
guidance, most members of the managing staff were drawn from the
Treasury ..
The bank's clientele consisted of a relatively tightly-knit group
dra.'WIifromCatholic circles,and. the direotors and staff were also
known as followers of this fa.i th. The bank served a small .but ,select
list of corporations and business firma centering in Paris. It was
unique among the large deposit banks in that it abstained from ex
panding its branch organization beyond Paris and its suburbs; it had
57 of these branches in 1938 as wf3l1 as an office in London.
In order to share in provincial'banking aotivity, the Credit In
dustrial in the 1880's organized the Syndicat,des banquiers des
partments. The m.erilbers of this 'syndioa.te were local.banks which en
tru.stedthe Creditlndus'trielwlth their Paris business (collection of
billa, stock exchange orders, etc.) and in turn received ia share in
seourity distributions effected by the Credit Industriel. In 1939, 49
provinoial and bankS still members of this . syndicate
At the same time the ,Cred!t Industri,elearly began acquiring an
ownsh1p interest '-nceMain and this development 'was
accalerated" in the 'thirties when many banks were forced by the finan
cial crisis to seek oUtside as.sistance (e.g. the Banque d 'Als.ace et
de 20 --and the BanqJle Pr1veaLyon-Maraei1Ie). ,In
1938 the Credl t Industrial headed a group of 12 "afflliate'dbanks'ft ;
with nearly 1,000 branches and 4.3 billion francs in deposits (nearly
11 Corresponding to the Offioe of the General in the
United states.
- 83:
double the amount of depc>sit13held by,__1:iheCret\it Industriel itself). 11
According to the example set by the other large deposit. banks ,
the Credit Industrielalso established a special affiliate for "a.li "
medium.- or long-term. ;credlt operations", the Union des;Ba:r:lques,Region
ales pour Ie Credit Industriel. It was established inJurie 1929 by
the Credit Industriel and ita affiliatedbanlo3 with-a capital of 40
million francs. Its, board of direotors was' ,of representatives
of the Ore,dit Industriel ,and of the principal affiliated banks; the
General Manager of the Credit :rndustriel (Ch.:Darlgelzer) acte<J, as Man
aging Director of the Union. Furthermore ,the Credit Industrielhad a
Belgian affiliate at in 1903: the SqcietElBelge
'de 'Credi t Industriel et Commercia.l et des Depots ,With a capi;ta,l:and
surplus of 9.2, and deposits of 59.6. million francs .
. The balance sheet of the CredIt.Industriel at the close
is below:
Credit Industriel
Balance sheet as of December 31, 1938
(millions of franos)
ABsete . Liabilities
Cash reserve 90.5 accounts 371.6
Balanoes with bankers' 4 Current accounts 1,637.1
Coupons in collection 2. Time deposits
. 178.8
Bills (commercial and Treasury) jl,423.3 Acoeptanoes 49.4
CUrrent accounts .
.Capital 100.0
Guaranteed .loans.and ((ontango 113.. 4 . Stlrplus re.,quire,d by 10.0
Debtors tor acceptances SUrplus and reserVes,. 69.0
S&cm.rities . 51.9 Profits 11.0
Shares of the regional banks 109.1 items and
Antioipated payments for 1938 miscellaneous

dividend 1.6
Buildings 20.0
Shareholders' 39.4
Contra items and mis ceIlaneoue 24.9
Total 2,455.2 Total 2,455.2
11 For further -details con'cerning this group', see p. 112.
-'84
Profit and Loss statement li
Debit Credit
General expenses 8.5 Undivided prof!ts
Taxes' 9.9, (from 1937) 3.3
Profits available for distribution 11.0 Profi ts' of current
business
176
MiScellaneous revenue
Total' '29.4 Total
y 'up bed'ore declaration ofd:i.v1dend; 7 million francs was d1s
trfbuted for 1938. '
The bank's own deposits were the smallest among the large deposit
bailks, as 'were its capital arid reserves, aggregating-less than 9 per
cent of depoei ts. It may be presumed, however, that it had extens,ive
hidden reserves. It also had relatively low cash reserves (vault cash
and deposits with the Bank of France), equivalent to less than 5 per
cent of deposits; however, it had in addition sizeable balances with
other banks.
o
The capital of 100 million francs was represented by 200,000
wi th a nominal value of 500 francs each. About 96,000 were
entirely "liberated" (pa.idin)"buton the others, only 125 francs had
been paid. Profitswere apportioned accordiIlg to the same fornula as
in. the ca.se of the Societe Genera.le: first 5 per cent on the amount
paid in and the remainder of the declared dividendse'qually to all
'shares. It follows that the shares always received '18.. 75
francs more than the others . The dividend was less regular than the
. sha.t-es of the "big three." From 64.32 francs in 1929 (for liberated
shares), it 'was gradually re'du.cedto 30 francs in 1935-36; in 1937
and 1938 it was again increased to 37-50 and 4) francs, r6specttvely.
The market price for liberated shares fluctuated between 679 and 722
franos in 1938. '
The securities portfolio'was relatively large, despite the fact
that the book value, in all likelihood, greatly understated the actua.l
value.' Although the bank never made public the nature of its security
holdlDBs , it was known that they consisted largely of
from. former undex-writing ventures, such as those of the Cie Generale
d fEleetricite, Cie Lorraine d 'Electric.ite, ',Cie Generale des Metaux,
de Chatillon-Commentry et CieUniverselle d'
Aoetylene et d 'electro-metallurgie, Charbonnages de 'Tonkin, etc. The
shares of the affiliated bankB were included ina special balance
sheet item, bUt no fUrther information was given as to- the nature of
these holdings. The bank did not even report separa'teJ.Y its .t'"evenue
from aecuritiesand from its 'interests in the affi11ated ba.nka. How
ever,assuming that the la.tter were, booked at their nomina.lvalue, it
may be stated that the .credit Industriel 'held nearly 40 per cent of
the share capital. of the affiliated banks as a whole.'
-85
The bank'sbbard of direotors was made up of men 'With long-time
assooiations with the instltution: former members of the managing
staff, representatives of old and valued oustomers, desoendantE;l ot
forme:t- officers, eto. ,It oonsisted in 1930 of following:
(1) H. Thelier, the honorary-president, representing a fam.ily
of old stookholders; his father and uncle had also"been on the board.
He was president of Charbonnages deTonkin,vioe president o'f Cie
FranoaisedesMetaux and of La Franoe(inaurance) ,direotor Of the
Credit National and of severalbanksaffiliatsdwith the Credit In':'
dustriel;
(2) J. Desohamp, the president, had been an offioial of the
Treasury-before beooming oontroller. then manager, and eventually
direotor of the bank.He .was a.lso '. president of the French, comm.1ttee
for the Chemins def
t3
rPormgais; vioe president of Charbonnage de
Tonkin; director of the Banque de 1 'Indochine, of some affiliated.
banks, etc.;
(3) M. Renaudin, a vice president, had also been an "inspec
teurdes financesninthe Treasury. Hews director of. La Nationale ,
Phosphates etChemins 'deferde Gafsa,eto.;
(4) E. Lebec,the other vioe president, and former manager of
the bank. He was direotorof Charbormagesde Tonkin,Cied',Electri-.
oite de of several affiliated banks;
(5) P.Desforges,former offioial of the1. Treasury and the,Na
val Ministry- He was pres ident of the Cie Lorraine d 'Eleotricite,
direotor of CieGenerale d 'Eleotrioite, Eleotro-Credlt, eto.;.
(6) L. Dupont, president ofthe:Banque L. Dupont etCie,one
of the affiliated banks. He-Qasalso the president or director of
several Important'mining'corporatlons in 'the north ofFrance;
(7) . M. Lebon, :one of the managing partners of the Cie Centrale
d'Eolairage par Ie gaz (Lebon et Cie), one of the oldest Frenoh
paniesof this kind; .
(8) J Bonnardel , representing a' family of rich stockholders;
his father.had been a member of the Board.!! He was also vioe
president of the CieGenerale de Navigation, director of the Ouest
railway, etc.;
(9) E. Dutey-Harpise, formert1a "censeur" of the bank for 31
years; his grandfather had been "cens-eurtJ:f'rom. ,1868 to 1904. 1:te was
JIe had been nominated by the board at the stockholders meeting
of 1928 for "his name, the tradition he representa, and the place
he holds' in business".
- .86
d:i,rector of the Metropolitain, Chemln.de fer de l'Indoohinee'tdu Yun
nan as- well as of some other corporations (metallurgic and gas indus
try); "
(10) A. Gay, sdne of a former president of the bank;
(11) Ch.deMonplanetand
(12) H.deMonplanet, sons of A. de Monplanet, the great presi
dent who died in,1927.
B.N.C.I.
-The et l'Industrie, together
with-- its prececessor institution, had avery checkered career and was
unsettled condition in 1938. This bank was es
tablished in 1931 to take over the sound assets and' clientele of the
'Banque NatioIiale de Credit,which had gone
The Banque Nationale de Credit (B. N. C.) had in
1913 to takeover the F:I'ench:-branches of an Alsatian bank then in Ger
man territory. It wa.s a very en.iterprising institution and expanded
the World War and subsequently. It established
close connectionawith many industrial corporations and developed a
widespread network of branches and agencies, of which it had 750 in
1929. In the course of its development, it had a.bsorbed a.greatJ?um
of local and regional banks and in 1930 even took over its -parent
institution, theComptoird'Escompte de Mu.lhOllse The crisis of 1929
30 however 1 gravely affected the pos itlon of the B.N C., mainly be
cause of its large commitments to the COlllptoir Lyon-Allemand.,
ness bank, the managing director of which was the Pres ident of the
B.N.C. In September 1931, the Comptoir failed and the B.N.C. ,was left
in- avery vulnerable pos itioIi. At thiapoint, the Government, fearing
the effects of the failure of so large a bank, intervened.
guaranteeing the liabilitieElof the bank, the Government "transferred
the sound assets of the B.N.C. to a newly established institution", the
B.N.C.I. "
The leading figure in the B.N.C.I. and its first president was A.
Butssq!?-," president of the Tribunal deConnnerce and a leading business
tnan with goodpolitioal conne.ctions . He secured thesubscriptt<;>n of
the new bank's' capital,assembleda boa.rdcomposed of industrialists
andrepresentatives of various financi,al groups, and made the necessary
arrangements with the Government liquidatorS of the B.N.C. The new
bank tRok over t:p.e premses, the staff an<i most of the branches- of its
11
TheB.N.C.I. SOOIl began to expand by a.bsorbing certain provincial'
1/ For further details concerning the liquidation of the B.N.C., see
. p. 21.
- 87
banks, notably the, Societe Nouvelie de la Banque Adam (see p. 29) and
the,Banque Renault. With its expanding branch organization, its 'de
'posits increased from 2.8 billion frap,cs at the end of 1933 to
billion at the end of 1938. To keep pace with this development, its
capital was increased from the initial figure of 100 million francs to
175 million. At the end of 1938, the B.N.C.I. had 32 branches in Paris
and the suburbs a.n:d80o- in the provinces; during thatyeara branch
was opened in London.
The following table gives the last pre-war balance sheet of ;:the
B. N. C. I.:
Banque Natfoo.ale pour Ie Commerce et It Indu.s trie
Balance Sheet as of December 31, 1938
(in millions of 'francs)
Assets Liabilit1,es
Cash reserve
Bankers and correspondents
Bills
Coupons
, Contangoes
382.3
883.6
2,7097
, 101.8
'30.2
Demand deposits
Time depos i ts
Acoeptanoes
Capital
Surplus
4,385,4'
258.6
154.6
175.0
25.0
Debtors on current account
7155
items and
Debtora per acceptances
Secu.ri ties
154.6
18.0
misoellaneous
Dividend and directors
f
:
30.8
Buildings and equipment
315
fees 8.3
Contra items a.nd Profits carried forward
52
miscellaneous 15.6
Total 5,042.9 Total
Profit and:Loss Statement
(in millions Of francs)
,Debit
Credit
To legal surplus 0.9
Undis:tributeO. profits'
'Dividend 9.4 (from 1937) 4.7
Direotors' fees 0.7 Net profit of general
To "parts beneficia1res" 1.3 business
159
To surplus 4.6 Revenue from securities 1.4
Profi carried, forward

Total 22.0 Total 22.0
The balance sheet of the B.'N. C. I. olosely resembled those of
the other large deposit banks. Disoounts and loans, chiefly to madium
sized or 'smaller enterprises, predominated overall 9ther types of
ba.n}ring operations. The oapital and reserves were unusually small
- 88
(less tha.n 5 per cent of total deposits) but presumably most of the as
sets ,were in good ponditionslnce the unsound items and. been cleaned
out the liquidation of t4e B.N.C" The bank's ca:sh reserve proper
was also small, but it had very 'large claims on bankers and correspon
dents. .
The capital of 175 million francs was by 350,000
shares of 500 francs each. The annual dividend, which had been '20
. francs in 1935-36, was raised to 30 francs in 1937-38. The market
price of the shares ranged from 575 tq. 635 francs in 1938., Aspecial
feature of the distribution of profits was the allocation topartici
patton certificates ("parts beneficiaires") held by the liquidators of
the former B.N.C. as a group were entitled -to re
ceive 20 per cent of the profits of the B.N.C.I. remaining after pay
ment of the allocation to legal surplus,. directors' fees, and a 6 per
cent dividend to the shareholders.
The a.dministration of thebank'was subject to frequent upheav:als.
The first A. Buisson, whose political interests have be >:t1
mentioned, resigned in'1935 and was subsequently elected to the Senate.
The vice president who succeeded him, E. Haguenin, was a former high
Treasury official, but his management was ill-fated and hereijigned in
October 1937.. His successor" J .. GUiraud, wa's another former Treasury
'offioial and deputy governor of the Bank of France. He broughtwlth
him a number of new direotorf;3 ,mainly "technicians n. The compositlo:g.
of the board at the end of 1938 was as follows:
(1) J. Guiraud, president.
(2) Count J. de Rohan-Chabot,vlce president, member of th.e
board since i.ts incepti9n. He belonged to an old noble family with
many financial connections.
(3) P. Strohl, vlcepresident, brough to the bank by J. GUiraud'.
He has been secretary general of the Bank of France. .
(4) A. Jacques, the managing direotor,alsobrought to the bank
by Guiraud. He had been deputy" manager at the Banque de Paris et des
Pays Bas.
(5) A. Pose, director and - from the. outset - general manager.
He' had been the general manager of an alaatian bank.
(6) R. de Charbonniere, member bfboard since the inception of
1;he bank, was ala0 director of several industrial corporationa ,main-'
ly electrical.'
(7) Baron D. d'e Dietrich, also on the board since 1933, belonged
to a rich family of metallurgists from Alsace. His mother was a Hot
tinguer, but it Is doubtful whether he represented the interests of
that banking l.louse. .
(8) L. Breguet, also on the original board, belonged to an old
family of industrialists and was known for his role in the expansion
of the aviation
(9) J. de la Bouillerie joined the board when Banque Adam
was absorbed.
(10) 'M. Lacroix, vice president of the ChamberofConnnerce\of
Boulogne, represented the, same interests.
(11) L. Vilgrain joined the board when the Ban'que Renault, was'":,,,,
absorbed.
(12) Ch. Baudry was an industrialist 'from A1sace.
(1;) F. Venot had cormectlons with the metallurgical
(14) P. Lantz, (15) J. ,Gue11enec, (16) Segara were leas, well,"
known persons.
Credit Connnercial
The Credi tCommerci8,l de France was probably the least known of
the six large deposit banks. It was incorporated in 1894 under the
name ":Banque Suisse et Francaise", havin8 formerly beenthe;J?aris .
branch of a Swiss bank. Originally intended merely-as a Paris corre
spondent for Swiss banks, it gradually expanded its local business.'-'"
Dtlring the flrstWorldWar,theban'k:participated in, financing new,' ill';;'"
dustries in the South and Southeast, and ,in 1917, after absorbing
several local banks, asssumed its present name. Expansion continued
after the war, and by 1938 the bank had 19 branches.
115 in the provinces, as wellaa one branoh in Milan 1/.'" ,
The policy of the Credit Commeroialwith regard to loans apdin
vestments was less conaer-vativethanthat followed by' the 'three de
posit M'nks. It mainta.ined close conneotions with various iridu.strial
oorporations, particularlY in the eleotrfoal and chemical fields.
Among such the Cie d 'Electriclte) Nord'
Lumiere ; Ene:rgie, Eleot:riquedu Littoral Mediterarmeen" Electro-Chemie
at Elactro-Metallurgie d"Ugine ,Rhone-Pouleno, Dolfus-Mieg et' Cie,
(taxtire plants in Alsaoe) ,etc.
The 'sheet of the Credit Commeroial for December 31, 1938,
is reproduced below:
'!J Orily a Co few 'of thee.ebranches' were in the North of France", where
the Credit Commeroial seems to have had a working agreement with
theCreditdu Nord' (aeep..109).
- 90 ..
Credit Commeroial de France
Balance Sheet as of December 31, 1938
(in millioils of, :francs} /
Assets,
Liabilities
Cash reserve 296. Demand ,deposits 2,511
Balances 'With bankers 400 Time .deposits 310
Bills
1,791 Acceptances 148
Coupons
33
Capital 200
'Long-term bills
71 Surplus 210
Contangoes 2 Contra items and
accounts
332
miscellaneous 81
GtJ.a.ranteed loans, .
322 Net profit 1938 17
Debtors per acceptances 148 17
Seatlrities
33
(from 193T) . ' 10
6
, Btiildings and fixed assets 46
Contra items and
miscellaneous 6
Total 3,,487 Total ' 3,487
-Profit and Loss statement 11
Debit Credit
expenses and taxes 121 Commissions, discounts, interest,
rtiet ,profit 17 security: selling, investments,
and rhiscellaneous
Total -r3S Total 138
y Drawn up before:declaration of divident; l6million francs was
distributed for 1938.
The ban'k'apl:llaIl,ce sheet presents much the same aspect as tnose of
other large de'posi t', banks. The capital and surplus were orelatively
rather sizeable, being equivalent to 13pe,r cent of total deposits.
The cash. reserve proper was a .. full 10 per cent of "deposits ,whileba.
lanct9s with bankers came tbanother13 per cent. Bills a.lone consti
tuted over half the assets, with holdines of securities and participa
tions again reported as very-small. No informB:tion was given as to
revenue 'from securities which wouldpemit a judgment as to whether,
their balance sheet valuation concealed hidden reserves.
The capital of 200 million. francs Was represented 'by 400;000
shares of 500 francs each. The annual dlvidendhad falleu from 60
franos, in 1929 to 35 ill 1936, bUt recovered to 40 fra.ncs in 1938.
The market of the shares ranged from 360 to' 620 during 1938.
The board of directors of the barik1ncluded industrialists ana
bankers, mainly from 'eastern and southern France; some had. connections
- 91
with the German speaking section of Switzerland, where the bank origi
nated. In 1938, the directors Were as follows :
(1) G. Siegfried, president sinoe 1926, was from an old family
of industrialists, some members of which were prominent in politics
and soience .. also president of Ciede Fives-Lille and of Grands
Moulins de Corbeil.
(2) M. Loechlin, vice pres ident, was from an old Alsatian family.
(3) B. Rossier, anothervioe prsaident,represented Swiss inter
ests
(4) J. Davillier, managing direotors:1noe 1938, was from an old
banking family, controlling the banque Davillier, a private banking
house which went out ofexiatence in the late thirties
.(5)E. Mercier was the most p:r:-omlnent direetorof th,e bank, being
one of the best known in,dustri8,lists He
vice president of several large electrioai corpora.ttons (Union
trioite, ,Paris:l.enne,de Distribution Eleotrique, Marocaine
de Distribution d'Eau, Gaz et Electrioite, etc.), and director in a
good many otherS. Front 1934 to 1937, he was director of the Banque de
,Paris et du
(6) H.E. ,Boyer, held an important position in French indus
try; he was honorary president of Rhone-Poulenc, president of Etab11s
sements Hotchkiss "(automobiles, and armaments), and of Etablissements
Deoauville (railroad equipment), andd1reotorin several other6orpor
atioDS
(.7) J. Level waS 'anothe'r holde,r of vfhfy many directorships. He
. was president of: Union pour I'Indus'tria et l'Electrloite and .Ala,is
'roges etCamargue (eleotro-chemical works), and director of several
o.theroorporatlons; maInly electrical. According to some reports, he
reF8sented the, Rothschild interests.. '
(8l.'x. GuD.th.ertwaa the managing director and chief technician
of the 'bank.. He had madehia career Inthe bank.
(9), F., and ,
''(10) R.A1IJ,ard oame to the bank: rromo11&ofthe abso:ubed 1:nsti

v. "Banques d 'affairea
, At,ter the prtvate,bankirighousea and. the- la.:rgedepoait banks',
perhaps thelllost important group of Frendh banking 1nstitu't1ons(aside
from pUblic agencies) Was the banques d"affaires, re'ferred to
... 92
in the present text as. the bus iness banks. 11
The distinctive feature of the business banks was their extensive
participation in so... called "financial operations" and the intimate re...
la.tions which they maintained with industrial corporations . A descrip...
tion of "financial operations" in the sense tha,tthis expression was
used in France Is contained in the section on "the capital market"
(see page 58). It was there pointed out that the- business banks,
with the private. banking houses, engaged extensively in the promotion
of new industrial and in underwriting new issueS on behalf
of e:X:istingcorpora,tfOns. Sometimes the business banks retained more
or less permanently blocks of shares which they. acquired in the course
of underwriting and issuing activities; they held such securities, not'
-only for yield, but also to establish a close community of in...
terest with the corporations concerned.
Since the business banks did not have any branch organization,
found it desirable to enllsttheassistanceof the la.rge.deposit
banks for the purpose of marketing new security issues. Certain of
the business banks even acquired interests in the large banks' in order
to use the 'branches of the latter for placing new security offerings.
Thua, the Banque deFariset des Pays-Bas (the leading business bank)
developed a close working relationship with while
the Banque de I 'Union Parlsienne worked through the Societe Generale.
Moreover, these two business banks had a direct interest, respectively,
in the Banque Privee-Lyon-Marseille and the Banque .Generale 'du Nord,
L10 regional banks with extensive branch organization.
The. 'bus iness banks had also developed a ratherextens ive commer
cial. banking business, especially during.the ...
no branch organization, their clientele- coneist'ed,ma.lriry of a.ffiIia:--tdd :
corporations or of wealthy individuals. They attracted deposits from
such sources and granted dis cou:Q.'he and short-term. loans, especially to
large corporations' in which they had an interest .As a. result of their
extensive foreign interests, acquired initially in the course of "fi
nancial operations", they played an irnportantrole in the international
acceptance business and in other fieldeof internationa.l credit.
In the follOWing review of the business banks,
attention ls given to _their, industrial affilia.tions, but it should be
pointed out that information on this subject is rather difficult to
obtain. The banks never JI1B.de pUblio a list of the sedU.rities con
ta.1nedin thelrportfolio, but some 8videnee may be found in the
11 The alternative English designation--investInent banks or invest
mentbanking houses ...... ls notparticularlt a.ppropria.te ,On the' one
hand, the banques d'affaires a much more intimate re
lation to industrial corporations tJlandidinvet';J'tment banking .
houses in the United states; on the other ha.rid, they also carried
on a fairly extensive coxnmercia.lbanldng business.
- 93
character of the directorships held by directors and managers of the
banks, and in the annual reports of the banks to their shareholders.
The annual reports are usually rather vague,however, as to the degree
to which the bank was affiliated with specific industrial corporations.
Banque de Paris et des Pays -Bas.
The Banque de Paris et des Pays-Bas (the "Paris 'Was the
oldest and largest French business bank existing in 1939. lilt was
established in 1872 by the merger of two recently established banks,
the Banque de Paris organi zed by s orne French bankers for financial
operations, and the Banque de Credit et des Depots des Pays-Bas organ
ized by a group of international bankers under the leadership of the
Bischoffsheims, a banking' family of German origin established at
London, Paris, Brussels, Amsterdam. The leaders of the new bank rep
resented private banking houses, which'united in the new enterprise
to pursue common "financial" activities.
The Paris-Bas (with branches in Ams terdam, Brus seIs, and Geneva)
gradually developed into a remarkable international banking organi
zation with cor..nection allover the world. Its activi ties before the
-first World War were concentrated in floating loans in France for
foreign governments and promoting industrial corporations in foreign
countries. It participated in, and often headed, syndicates which
issued loans for the. French colonies, Argentina, Mexico, Uruguay;
Egy:pt, Russia, China., Bulgaria, Rumania, Norway, Spain, Turkey, and
other countries. It initiated, or participated in, the promotion of
banking corporations in French colonies and in foreign countries (rus
e.ia, Spain, Mexico, Argentina) , ratlway corporations (in China and
Argentina), and foreign industrial corporations. In France, its ac
tivities were less extenSive; yet even at that time the bank had in
ter-ests in several electrical corporations, which wet'e expanded af
ter the War.
Following,the first World War, the Paris-Bas extended its ac
tivities in th.eFrench colonies and in Continental France; while still
remaining the leading international banking. iustitution ,in the country.
The Paris-Bas tqok a. prominent part in the few foreign govermp.ent
loans which were floated on the Paris market after the war--e.g. the
Rumanian and.. the:Bulgarian issues in the late It also .
extensively in the fom.a.tionof holding companies, a character
istic development of the 'twenties; the' business banks found it much
easier to control industrial corporations through holding companies;
rather than by" taking the shares of these corporations directly into
their portfolio."
The most important of the manifold interests which the Paris-Bas
11 The Credit Mobilier, established in 1852, was the prototype of
the business bankJ3. Af,ter being reorganized tWice,. it finally dis
appeared' in 1932 by merging with the Banque de l
1
Union Paris ianne.
summarized in the following paragraphs. Since the'bank
made public a list ofttssecu:rity holdings and participations,
the character of:itsinterests'carl'beindioated only in a way
without precise eviaence concerning the degree of its ownership or
oontrol.' "
In Continental France, the i,ntereets of the Paris-Bas were very
widely d.istributed, coverlngcompani6sin the. field of ra,lIVJays, elec
etc. ItmaintB.ined cloae connections with,
though not control over, such corpora.tions as the following:
I
SteGenerale des Chemins de fer Economique (about 2,500 miles of
Ibcalrailwaya) ,
Cie Generale, d 'Entreprises Electrequee '
Cie Parisienne de Distributiond'Eleotrioi:te
Cie Francaise des Cables'Telephoniques
Cie ParisieIUle de 1 'Air Compr1me .'
The Paris-Bas took a special interest in the radio industry and
deVieloped c9nnections with severalenterprisss in this field, sucha:s:
Cie Generale de Telegraphie sans, fil (with participations in
several other corporations
Nadio-Franoe
Radio-Orient (radloatationB"in Syria and in Lebanon
, :Radio Maritime (radio inatal1ationson 1,15'0' ships)
The Paris-Bas particpated" of courSe, in the as tab1ishment ,during
the inter-war' period of such specialized banking' corporationsa.8 ' Credit
National ,Barique Franoa.is's ,duCommeroeExteri9ur, 'andBanqued,' Accepta
tion. It took the inconjunotion with Iaiard Freres in es
tabllshingtheqie Centrale' in
Moat of the business of the Pa.ris-:Basin the French Empire was
ohanneled through two holdIng' theCie Generale des Colonies
and the Cie Gene'rale du Maroc. Among the numerous other colonial cor
porations cloaelyconnected with the Paria-:Ba.s were thefo11oVJing:
Cheniins de Fer de, Tanger a Fez
Cie des 'ch'emi.:nsdef'erdu MarOc'
Erlergie, Electrique de Maroc (several hydroelectric 'and thermo
eleotric plants, parti oipationa in other cbmpariies)
:Regie COintereasiedes Te.bacs'du.iMaroc
ThEfParfs -Ba.e hag. important interests" but ,not control in certfdri
other colonial corporations and in, several colonia1banlr.s (e.g. Banque
de l:Indo-Chine, Banque de Madagascar, etc.) .
. Desp!te ali 'these activities on French territory" ,forelgncoun- ,
trieswe':r.e the scene of the bank'smost:i.mportant <Despite
the marked falling off of'foreign business after the World War, the
- 95
main oonne'ottons of the Paris-Bas in 1938 were ,still with foreign or
franoo-foreign oorporations. The available information concerning,the
fo:reignholdings of the Paris-Bas in 1938 rela.tes primarily to French
oorporations operating abroad or foreign companies whose securities
'Were 'listed on the Paris Bourse; little oan be said about the other
oorporations with which the Paris-Bas might nave been associated.
The foreign activities of the Paris-Bas were often carried on
. through, controlled banks or friendlyoorporations. Those banks in
whioh the Paris-Bas exercised some degree of control include:
Barique Francaiseet Italienne pour 1 'Amerique du Sud
Banque ottomane (and its affiliates : Banque de Syrie' et du
Liban and BanqueFranco-Serbe)
Banque des Pays de l'Europe Centrale
Banque Franco-Chinoise pour Ie Cottrmeroe at l'Industrie
Credit Foncier Franco-Canadian
Banque Franoo-Polonaise
ThePar'is-Bas displayed a particular interest in the oil industry
and .developed re'latively close connections with the followIng corpora
tions:
CieFrancaise des. Petroles (participation in Iraq Petroleum Co.
and other oil compan.ies of Near East)
Omnium Francais Petroles (participations primarilyinRu
manian oil companies)
Standard Francaise desPetroles (affiliated with Standard Oil Qf
NewJersey) . .
"Colombia" (Franco-Roumaine de Petrole)
Among foreign ra.ilways in wh1_ch tthe Paris -Bas was interes.ted .were:
Chemins de fer de la Province de Btlenos ...Ayres
Chemins de fer de la Province de Santa Fe
Cie du chemin .defer Franco...Ethiopien de Djibouti a Add,is:-Abeba
Connections with almost all of the oorporations abnve
were 6stabltshed in the 'twenties. or earlier. In the decade. of the
'thirities,a few new foreign co;'porattons were founded by French capi':'
tal. Among the ne'W companies founded the Paris ...Bas weretwofbr
operations in China:
Cie d'Entreprises et d'E.xportations en Chine (established in 1936
under the auspices of the Banque Franco-Chino1se)
Ste Financiere en Chine (eatabllshedincollaboration
with Lazard Freres, Banque del lIndo-Chine, and Banque Fi:"anco
Chinoise-mainly concerned with the btlilding ofa railway:rrom
ChengNari QuaIl .to Nanking)
The Paris-Bas had branches in Axnatertiam, ::Bru.ssels, .and Geneva. Un'"
- 96
Ilks the foreign branches of French deposit banks, each branch of the
had an advisory committee including prominent 'bankers and
business men of the country concerned. Each was largely autonomous',
operating extens in its local financialI1la.rket.
The following table reproduces the balance sheet of the Banque de
Paris et des Pays Bas for and 1938.
Banque de Paris et des Pays Bas
Balance Sheets for end of 1929 and end of 1938
(in millions of francs)
ASsets
1929 1938
Cash reserves 223.1 332.2
Bankers and correspondents
Bills: Domestic
6g3.9
753.7
684.6
1,066.5
Foreign
Current accounts (
332.9 250.4
522.0
acceptances
Contangoes'
(1,870,,1
76.1
191.0
21.8
Coupons
Shares (incl. Government bonds)
25.9
342.2
34.5
426.4
Participations 156.1 1331
I":ems in course
Miscellaneous
of collection, 65.1
48.1
37.8
303
Premises 23.6 26.8
Total 4,551.3 3,7570
Liabilities
Capital 300.0 300.0
Surplus 270.0 280.0
Contingencies funds 12.4 12.1
Acceptances 388.4 2137
Demand depos its 1,390.3 2,121.4
, Time deposits 1,894.8 674.9
Creditors for items in course of ' collection 65.0
377
Miscellaneous '132.4
88.,
Reported profits 28.8 9.3
Profit of the financial year 69.0 19.4
. Total '4,551.3
3,7570
The original capital of the bank had been 62.5 mill10nfrancs but
it was contiIiuously ,finally reaching 300 million in The
shares had a nOIil.1,nalvalue of jOOfrancs each, but the. initial
issue, they were sold at substantial premia; 'Y1argely as a result of
!I 'The issue price' in 1,250 fraties, although the market price
was then much higher.
-: 97
this,- the surplus was almost as large as the capital. Time deposits
much exceeded demand deposits in 1929; in 1938 they were less than a
third of demand deposits but still relatively large as compared with.
those of the deposit banks. On the assets side, cash reserves were
rather more than the conventional 10 per cent he.ld by deposit banks,
and balances with bankers and correspondents were also very ample.
The most notable feature,"however, was the relatively large holdings
of securities a.nd participations. FIlrthermore, "current accountsttal
so contained not only advances to customers but also some assets re
Bulting from "financial operations
n
; funds invested bya bank in syn
dicate operations were included among the "current until the
seau.rities acquired by the syndicate were actually delivered to the
bank. !I Aanoted previously, the composition of the securities port
folio and the participations was never made public.
The Paris-Bas was on!3 of the few French banks to publish a pro
fit and loss statement in which the origin of different categories of
profits was But unfortunately, the apportionment was such
that part of the proftts from banking operations were
grouped with those from financial activities. The following table
shows the figures for 1929:
Banque de Paris et des Pays-Bas
Profit and Loss statement for 1929
(millions of francs)
Credit Debit
COmlliisslons (feee) 33.11
Interests andprof1ts of the portfolio
(bills and securities)
Contangoes
60.5
2.11
Taxes
General expenses"
12.4
70.0
Profits from securities sold 39.0
Profit of the branches 16.1 Net profit 69.0
151.4 151.4
Although the largest item includes income from the portfolio of
both bills and securities, it is evident that the larges"t part of
profits originated from financial transactions. The profit and loss
statement for the financial year 1938 was much shorter:
claims on syndicates were also included by deposit banks under
their current accounts, but toa inauh lesser extent.
Profitand,LQssStatement: for 1938
(millions of francs )
Ored-it Debit
Issu.es, investments, and securities portfolio 38.9 Taxes 11.9
Discounts,. interests, commissions, and General
m,is cellaneous
55.3
71.6
Net profit Of branches
8.7
Net profit 19.4
103.0 103.0
'Compared with the preced1ngtable, these figures indicate not on
ly a considerable shrinkage in ,the profit, but also a change in its
source. In 1938, it was derived largely from general banking opera
tions.
The d:ividen<i fell gradually from 100 francs per share in 1929 to
nothing in the, middle 'thirties; it '. thenrose again ,until it reached
35 fraIlGs in 1938. The shares of Paris ...Bas' were among the leaders on
the Paris Bourse; many were acquired by investoTsin neighboring coun
tries such as Belgium and SWitzerland. The quotations went as high as
5,000 francs in 1999; .wt in 1938,they fluctuated between 900 and
1,445.
The board of directors of the Paris-Bas in 1938 included the fol
lowing :
'l} E.Moreau, the president, former Governor of the Bank of
France. He was alsopr.esldent of the major affiliated corporations:
(2) A. Atthalin, vice president, official of the CO,naeil
d'Etat., manager,and.director of Paris
or director of several friendly
corporations ;
'(3) E. Fouret, president of the.Librairie Hachette, the powerful
agency having almost,a monopoly on the sale of newspapers in France;l!
(4) .. of, the' private banking house , Lehideux etCie;
(5) E. Oudot,rormerIIlB.na.gerof the'l';1.rls-Bas;
(6) Count F. Pillet-Will from a.n!"oldfa.nrl.ly of bankers. The
Banque Pillet-Will nO longer existed;. but the.family kept up
I ,
1/' The president' of Paris-Baa was vice-president of Hachettej the
general manager of Paris-BaS, one of the directors of Hachette. It
was .consequently claimed that Hachette waa controlled by Paris-Baa
and the naIQ.e of the bank was sometimes involved in the controver
sies arising fr.om the monopolistic position of Hachette.
-99 -'
with numerous corporations;
(7) eh. Bist, the well known economist who was' also director of
Oanal de Suez;
(8) M.'Tinardon, a noted industrialist of Paris,' Regent Of the
Bank: of France un:til J.936,;
(9) L.',Wibratte, for a longtime manager Of the Bank, elected as,
director in 1938.
With one or twq the direotors" and managers of, the
Paris-Ba.s held a other corporationa,
most of which have preceding pages. "
:Ba.nquedefl'Union Parisienne
" The BanQ
1l
6" de 1 "the second t ,business
so stroDEf . ):t
was ,:the initiative o.fthe. haute' ba;nqueprp:tes
'taIlte(the
baud, de aI:ldyernea), ,l'1h1ch:f'el pf'a
tion'to. trengthof the a;nd"tp.e
' ,Th.ey' cooperation of, the:ste
ttteParis,fi-'
JlB.p-ciatmarket '!'hereafte.r Ste'GeIleraie
de Belg:tqu,e cOoperated in,F;-enoh and in Belgian linder
takings. ' , .
, , .
over the Batlque Pa.risieIlP:e,' a' relativ(;}
ly small ba.nk withpartt"61pations in several Frenoh industrial under..
takings. l3efbre, the ,first World War l.t partiolpatedln several
foreign loa.ris, generally, tOID;inor countri,es, and, in th;efouIldlng of
industrIal corporations abroad;i.tsdeali:nga lri.Rtlssiawereparticu
larlylmportaAt. Atthe,samet1me, bEi.n.kestablished connections
with n'ijmerousFrench ,corporationS" particm.larlywith electrical:. com-,
panies .:' " '
Unlike the ,Paris-Bas, from, the v-erybeg1nD.ing, the Union Paris
iennedeve16ped 'commercial banking side 'by" side' with. inves'tment
banking. Apparently, a large part 'of ltscoxmnercial business was
with the private :pap.ks'-represented on its board ofdlrec
tors.
In the pos,-t-;v'arperiod;. the Union' Parisierine ,reinforced 'its links
with French .,lnctustries, especia.lly Y11ththe fJchrieider-Creusot concern,
and ,as the bank for ,New dlrectops ,were
naiDad., Schneider, the head of the Schneider-CreUBOt 'con
cern; ,R. de Wendel" one of the heads of' the' second largest. metallurgi
cal ooncern' iIi France; H., de Darcy ,presldentOf Hoiiil
leres (coal mining cartel) and A. Fournier, of' the
- 100 -
Sohneider oonoern.
On ,the whole the aotivitiesof the Union Parisiennewere even
more widespread than those of the Paris-Bas ; however, in most of its
finanoial operations during the 'twenties, it did not play the leading
'role . At the meeting 'of shareholders in 1932, it was revealed that
thesecuritres portfolio of the tInt,on Parlsienne inoluded 338 dif
ferent seourity is.sues ,representing 'a very wide diffusion' of risks.
The oomposition of this portfolio was as follows: Book value
, (in millions of franos)
67
25
25
'59
20
issues of banks and financial corporations
.. n railways and other trans port
"n wate:n1orks" eleotrfoity, gas
.. n matallurgioal works &' mines
n' II 011 and 'ohemical
140
. 26
70
59
'42
142 ".. misoellaneous 102
338 439
In 1932"ahuge' operation the absorption of the
Credit Mobilier (see pp. 3-781.Both banks had been hard hit by the
finanoial oris is of the early 'thirties., Since friendly relations ,
existed between the two,aIld sinoe ,both had been pursuing similar'ao
tivitiea, it seemed that a merger would strengthen their ,position.
Aocoriingly, the oapital of the Union Parisienne was raised fr6m200
to 300 million franos, the new shares were assigned to the ,share
holders of, the Credit Mobilier, and the entire assets andliabl1ities
of' the latter' were' taken over by the Union Paris ieIme. This fusIon
did not remedy the pos ition" however. The 'bank suffered heavy losses
on its partioipations in Central Europe, in South America, and in the
French oolonies. With, the. default of oertain borrowers, particularly
several' foreign debtors, large losses were again sus,tai:Qed and the po
sition became critioal.
In May 1934, a drastio finanoial reorganization was undertaken.
Various reserveeand'oontingenoy funds amounting to 135 million francs
weref'irs't extinguished., and then the capital was wri ttendown from'
30.0 to 100 The amOllntwhiab. had to be 'written off
was estimated at ,31 million franos--170 million on seourity holdings,
and most of the rest on .debtors. At the same time, a syndioate headed
by the Banque Lubersao et Cie, brought 100 million " new oapi
tal tunds into the enterprise.
During the seoond half of 'the 'thirties the aotivities of the
Union Parisienne were on a rather redu.ced soale. Some, of its best
partioipations had been sold duringtheorisls to meet its obligations 1
and now a further portion of its seourities portfolio was liquidated.
In 1938 the Union Parisienne still held interests in many oorporations,
but generally ona small s oale These corporations inoluded:
11 Actually to 104 million, 4 million then being distributed -to share
holders'to reabh a round figure.
- 101 -
Cie Francaise des Petroles
Banque Commerciale Roumaine
Francaise de TramV?ays etEclaira.ge E1ectrique de Shanghai
Cie Financiere BeIge desPetroles (Petroflna)
Banque HYpothecaire Franco-Argentine
Forces Motrices de la Truyere
Entreprises CampeMu, Bernard
{public workS and. bui ldings )
The following table reproduces the balance sheets of the bank for
1929... -the peak of the expansion, 1933--0:0 the eve of the renegotiation,
and 1938.
Banque de 1 'UnionParisienne
(End of year figures in mill ions of francs)
Assets
1929 1933 1938
Cash reserves 105.8 60.1 68.3
Billa 490.0 237.1 403.7
Various loans 1.5
Contangoes 74-.4 1.1
Current accounts
.289.9 248.9 166.5
Securi ties 195.9 321.0 159.8 .
Participations 131.4 106.6 40.1
Correspondents 442.4 24.8 192.7
Miscellaneous 25.6 17.8 13.2.
Debtors per acceptances _ 209.6 59.9 75.8
Premises
372
51.4 49.7
2,008.2 1,128.5 1,171.4
. Liabilities
Current 1,398.2 753.9
828.2
Acceptances 209.6
599
75.. 8
Capital .
200.0 300.011
200.0
. - 26.9
Surplus 126.0
MiscelIaneous 39.0 14.6 15.5
Profits
24.8

2,00 .1 1,171.4
11 Figure before the reduction of capital appr0ved by the share
1934.
The balance sheetof the bank is comparable in a general way with
that of the Paris-Bas,. securities and _participations playing a signifi
cap.t role even In-1938.The bank's capital consisted in 1938 of
400,000 shares of 500 francseach\. No dividend way paid in 1931-36, but
25 francs per share was distributed in 1937 and 30 francs in 1938. The
market price of the shares in 1938 rang-ed between 330 and 547.
- 102
A majority of the direotors on the board of the Union Parisienne
represented the founding banks; in addition there were two formerdi
rf;lotore of the Credit Mobilier, one rapresentativeof the Lu
bersae, and one ofthe Sooiete Genera.le de Belgique.
Union des Mines
The Union des Mines was one of the eo-oalled "oorporative" banks
established in thev.twe.nti.es i.n order to finanoe a particular branoh
of industry or trade. But wh;11e other such banks, (e.g. Banque Coton
n.iere, eto. see p. 118) devoted .themselves primarily. to oommeroial
banking and remained relatively modest organi,zationa, the 'Union des
Mines engaged in all 'kinds of banking aotivities and beoame
the third largest-business bank in th.e .cOUntry'.
'The Union des Mines was establiahed'1n1923 by leaders of the
ooal mining industry in order to the b8nking andfinanoialneeds
of companies opera.ting .in this field. . The origiml founders were'
shortly joined by representatives ofmetallurgioal industries. The.
bank developed its oommeroial banking Srotivities and lnvarl
QUB . fInancial It aoquired interests in various regional
banks,predominantly in'coal mining areas, and established several af
filiated holdingcompaniea with diversified interests in
oolonies, and abroad. The Union had important interests in mines of
Upper Bilesia, and also acquired some interests in the Transa.merica.
Corporation. In 1930, after a phenomenal growth, it had a capital of
270 million franoa, deposits of 1.1 billion, and asecurities port
folio of 270ml1lion. .
Several. of its ,financial ventures, inoluding that in Trans
america, resulted in s6verelosses .. Consequently" in 1,931 and again
in 1936 internal financial reorganization was necessary; all of the
bank's reserves and a major part of its capital had to. be written qff.
In the 'thirties, the bankoontraotedits limiting itself
once more merely to financing the coal industry. Tn.e maini tems of
the for Deoember 31, 1938 are Biven in the
table: .
(inm1111ons of franos)
.'
Assets Liabilities
'Cash 'reserves and at banks 131.6 Capital paid in .60.0 .
Bills (commercial a.nd Treasury,
354.2
Surplus 250
Curren't ll,ocounts .
20.5 Current a.ccounts 477'.0
Securities and participations
Debtors per acceptances
60.0
'38.5
Aoceptances
Guarantees .
38.5
3'8:3
Guarantees 38.,. Misoellaneous
5.5
.

Profit 10.3
6553
655.5
- 103
The capital of 60 million francs was
of 125 francs each. Dividends reached a maxilllUIri of 40 francs in 1929,
fell to zero in 1930-36, and then recovered slightly. amounting to 12.5
francs in 1938. The market pri.ceof the shares of 1938 ranged between
12; and 168 francs.
Banque Transatlantique
The Banque Transatlantique is ordinarily included among-th...busi: .....
ness banks, although its activities differed markedly from those of
the others in this group'. However, neither can it be classed with the
deposit banks proper.
Esta'blished irit881, it expanded somewhat in the inter-yJ8rperiqg;,
never attaining more than moderate size. Concerned predominantly.wtth
exports and shipping, it a"1so developed connections withthe.diam()l1d
trade and other Moreover, it held interests. in
the Banque de Tunisie, Banque Conimerciale de Maroc,Banque. Commerciale
Africaine, 'and Banque H. Weil!'.
The m.a.in Itetp.S in the balance sheet of "the Banque Transatlantique
for December 31, 1938, were'as follows:
(in millions of francs)
Assets Liabilities.
Cashand at banks
Bills (complercial and Treasu:ry)
108.6
288.3
Deposits
Acceptances
403.2
45.4
Loans 76.6
Collections
Seourities and participat10ns 52.4 . Capital paid
66.0 .
Debtors per acceptances
Items in collections
40.0
36.2
Su.rplus
Profit
41.6
. 8.0
,)[iscellaneous
Total
. 9.3
615.5
Miscellaneous 20.1
615.5
The capital of 66 mlilion francs was represented by 132,000 shares
of 500 francs each. Dividends paid. in
1934.... 35 but more than 9 fran.cs in 1937 and again in 1938. The ;market
price of the shares in 1938 ranged-between 575 and 685.
The two leading membe:rs of the of directors were G. Despret,
an important leaaer in several glass and ohemicalcompanies,
and R. Fould, who had extensive connectlonswith the shipbuitd1ng in
dustry. The family once owned one of the private bank
1nghouses(the :Banque Fou1d, subsequently absorbed by-the Banque Heine)
and which in 1938 still retained extensive interests .in indus.try, par
tlOl1larly
- 104 ...
Ba.nquedes:pays du Nord'
The BanquedesPa.ys du Nord was established fn1911, primarily to
handle nor-thern European business, but it sUbsequently extended its
aotivities in France proper. It was closely oonnectedwith theSchnei':'
der-Creusot con'cern, but little else is known about its o,perations.
The main'iteInsof the balance sheet for Deoember 31, 1938, were
as follows:
(in millions of francs)
Assets Liabilities
Cash and at banks
153.6
,Capital paid
50.
0
Y
Bills SUrplUs 8.7
Curtrtent accounts 16.2 Deposits :'.347 . 4 "
SeOllri ties
Partioipations
79.7
8.7
'Acceptances
.. M1seellaneous
'20.3
6.6
Debtors per acceptances 5.2 Profit
3
Misoellaneous 18.2
Total 436.2 Total 436.2
11 Raised to 100 million francs in July 1939'.
The shares, issued in denominations of 500 francs, received no
divfdend in 1933-38. The market price of the shares 'reached a m.a.xi
mum or 814 in 1929 and ranged between 150 and ,199 in 1938.
The most pr-ominen.t members of the board were E,. Schneider, the
Count de SaiI1t-Sauveur' (-brother-in-law of Schneider ), the Marquis de
Chasseloup-Laubat (also connected with Schneider interests) ;Lord
Chaa. Montagu of' MontagU, Stanley and Co . .t Ltd. , London, and Th.Lau
rent (director of the Societe aenerale gj
Banque des Pays de l'Europe Centrale
The Banque des Pays de l'Europe Centrale was a business bank,of
a speoial.oharacter .. Ttwas e.stabliahedin 1922 to take bver .... the
former Austrian Land.erbank. Of its oapital,4qmillion franos in
monsha.res were issued to the former Shareholders of the Landerbank
and 60 million preferred shares were subscribed by a syndicate under
the 'direction of the Banque' de Pariset desPa.ys ,Bas.
The bank developed its a.ctivitiesi:nthe Parisian market, pri
marily commercia.l operatIons with Central Europe, but also
some finanoialoperations. Its mainooncern,however, wastheadmin...
istration of .the . interes ts of in Aus tria and in
y Three' directors of the bank were also' direotors of the Union Euro
peenne, olose1y oonneoted wi.th Sohneider interests (see p. 18).
the succession States. The .financiaL orisis of. the early 1 thirties,
followed by exchange restrictions, and the freezing of foreign assets
in all Central European countries, greatly.impeded the operations of
the- bank, Vlh:t-ch thereafter revolved around managing the
frozen assets.
The bank had 6 branches in Austria. and affiliated banks in Czech
.oslovakia, Rumania, Poland, and Hungary. In June 1938, the Austrian
branches we:t"e sold to the Mercurbank (controlled by the Dresdner Bank),
a transaction which considerably reduced its total assets and liabili
ties. ThemaiIi items of the balance sheet for De-cember 31, 1938,
follow:
(in millions of francs )
Assets
Liabilities.
Cash andatbanks'
Bills' (commercial
Seaurities and participations
Current accounts
Mis.cellaneous
and Treasu
Total
ry)
1.32.8
52.8
109.6
96.;


Capital paid in
Surplus
Current accounts

Profit
.Total
100.0
19.9
279.2
10.5
6.8
412.4
._ The nominal value of the shares was 500 francs. The ba.nk paid
in the tYJenties, but payments were very irregular in
the ensuingyea.rs. In 1937 and 1938, the preferred shares received 6.47
francs and thecolIlIlion 4 francs The market price in 1938 ranged,between
205 and 320 for the preferred shares, and between 180 and 320 for com
mon.
The president of the Banque des Pays de l'Europe Centrale in 1938
'was A. Luquet, former deputy governor of the Bank of France. The vice
.president was the economist Ch. Rist, representing the interests of the
Paris-Bas. TWo other directors also represented the Paris-Bas; another
belonged to .theold bank Gouin Freres (Tours). The other French di
reotorswere former diplomats or representat-;tves of rich and noble fami
lies. There were also directors from Austria, or from the 'successIon
states, representi:ng the of the former shareholrders of the
Landerbank.
Banks for industrial loansl!
The banks f'or industrial loans established after the first World
War may be included in this 'section., Their activities differed from
those of business banks, especially since they.did not indulge in "fi
nancial operations.
1t
However, they resembled ,deposit banks even less'
11 The Credit National established in 1913 could be treated here, but
because of its great'importance and distinctive features, it will be
discussed in the s'ection on pUblic credi t institutions. (see p.147).
- 106,...
f'orthey did not,accep\4.emand depQsits, 'or carry on short-term lend
ing.
. '. .' .-' .
These'organizations characteristioallywereestaplished by the
la.rge deposltbanksfor the purpose of granting long
loans to ,:tndustrialenterprisesc The foun<iing banks were instru.mental
in selling" the bonds or ;medium-term. obligations of. institutions,
and frequently granted them temporary loans as well. There were also
a few analogous institutions, relatively inde.pendent, establis'hed by
grOllps'of industrialists with the aid of one of' the banks. Unfortu
nately few details as to the activities of tJ;1ese-organizations are a
vailable; in some cases, the balance sheets are missing.
The Union pour Ie Credit a l'Induetrie Nationale (UCINA) was the
oldest of these haVing been established 1919 by the
Credit Lyonnais and the Comptoir <i 'Escompte. Wi th tal of 50 mi L
lion francs, of which 12.5 million was paid in, its objective was
granting medium-term loans particularly to moderate sized industrial
enterprises. The UCmA obtained additIonal working funds by issuing
obligatlonsof 2 to 5 years maturity. Its board was made up entirely
of representatives of tp.e founding banks.
The Omnium Financ'ier pour l'Industrie National {OFINA) was es
tablished by the same founding banks in 1929. Its capital was alao 50
milliQnfrancs" one. fourth being paid in. It granted long-term loans,
obtainingthe necessary' funds by selling long-term bonds. In.1930,
30 million francs of. 4-1!2per cent bonds; and in
1931, a further 50 million at 5 per cent. The. Bourse quotations in
1938 ranged between 580aIid 813 for the 1930 bonds , and bet,ween, 630
and 890, for 1931 bonds. The board of directors of OFINA was composed
exclusively of representatives of the founding banks.
The Socletede Credit a l'IndustrieFrancaise (CALIF) was es
tablished in June 1928 by the Societe for the purpose-of
granting loans to industry. The capital, originally 50 mil
lion francs, halfpa.id,' was raised in ootober 1928 to lOO/million,
(al-aohalf paid in) at which time theCredit Commercia). d.e France and
the Nat10nalede Credit acquired interests in the,organization.
In 1931;;0 million francs of 4-1/2. Percent bonds were issue.a. Dur
ing 1938 they were quotad on the 600 and 750 francs.
The main items Of the balance sheet for December 31, 1938, follow:
(millions of francs)
Assets".
,
Liabilities'
Cash Cs.pital paid in 50.0
Banks and correspondents 6.0 :Reserves 5.6
Current accounts
63.9
Bonds 22.6
.:Sills 47.0 Deposits 30.1
Misoellaneou.s 0.8 Miscellaneous
71
Profit 3.4
Total 118.9 Total : 118.9
- '107
The Union des Banques Regionales';I>ourle Credit Industriel (tr.BRCI)
waseatablishe9. in 1929 by the Credit Industriel,'in cooperation with
its affiliated regional banks. Its capital was 70 million francs, one
fourth paid in.' Little-information has been made 'public as to the or
ganizationandactivittes of this' bank.
The. Union Bancaire du Nord was established by the-Credit duNord
(seep.l09)in cooperation with a Belgian grou,p. The capital of 60
million francs was almost entirely paid in. It issued in 1929 20 mil
lion francs of 5-1/2 per cent twenty-year bonds, and in 1931, 20 mil
lion fran,9s of5 per cent' notes rnaturing in 1937-41.
The Union Industrielle de Credit pour laReconsti tution was es
tablished ln1920 by ,a group of leading ind'!lstrialists in cooperation
with the leading banks (Paris-Ba.s,SocieteGenerale, Credit Industriel,
eto.).Ite major aimVlas to finance the rebuilding of plants during
the period prior to the payment by the Government of war damage com
pensation. The original capital of only5mt'11ion.francs was later
raised to 15 million partly paid itl; it was expected that the institu
tion woUld operate principally with funds obtained by issuing long-term
bonds. Actually, the UnionfulflIled its original purpoa.e only for a
shqrt time and even then a.cted largely as an intermediary, the financ
i.ngof reconstruction haVing been urtdertaken by the Credit National
(see p.147). The presiden't of the board of directors was C. Moret
(representing the Earis-Bas), and the vice-president, R. P. Duchemin
(president of Etablissements KUhlmann and one of the leaders in the
chemical industry )
'The ASBociationFinanciere pour.le Commerce et IfIrtdustrie was es
tablished in 1919 bya group of rather obscure businessmen with a capi
tal of 24 million francs of which l6million were paid in. In 1938
there were outstanding 16.4 million francs long-term 5 and 6 per cent
bonds.
The following table shows the of loans outstanding' at the
end gf 1937 for each of these banks for industrial loans.
Loans OUtstanding at End. of 1937Y
(in millions of francs)
UCDVA .. 0 . 91.5
OFINA 51.0 G
'CALIF . 88.7 . A
UBRCI ............................................................. 77.4
Union Bancaire du Nord .
Union Industrieile de Credit pour la Reoonstitution "
51.'2
,39.6
Association Financiere. Commerce et .1 'lndu'strie it .
1/ Later figures not available.
I
- 10.8
The limited importance of these iriati clearly evident.
the loans on "currentacoount" of the deposit banks, with
the loans of the Credtt National, oravenwith the bonded indebtedness
of larger ipdustrialoorporations, these f1guresare indeed small'.
Nevertheless', these organizations rendered significant service to aome
industrial enterprises .
VI. Theregional andlQcal banks
Before the ,first World War, some of the regional and local banks
had developed close cormections with looal.industry, after the- fashion
of. the German or Belgian' "mixed banks". After the' war, many of them
continued along this line. Others, branch or
ganization and tended more in the direotion.of oommercialbanking fol
lowing the pattern of the large deposit banks.. Acharacterlstio ex
ample is afforded by the Banque PriveeMarsel11e-Lyon. Before the .
first,World War, this bank engaged innum.erous "finanoial operations",
Partioipated in the oreation of industr:ial corporations (especially in
the textile industry of I{y'ons}, and wasrapresented on their boards.
In, collaborated closely wi th the Banque de Paris at des Pays-Bas. Af
ter the war the policy of the Banque Privee became much moreoonserva.;.
tive,and /connections with industrial corporations were gradual
ly liquidated.lt ' , .
The orisis of the, 'thirties resulted in the oomplete disappearance
of many, regional and local banks or in their fUeionwi th stronger in
stitutions. Those which sunived thts hectic period generally tended
to a'dopt m,oreconservative credit policies. The institutions
in 1938 may be cla.ssified 8.S '(a) large regiona.1 banks , (b) regional ,
banks affiliated with the Credit Industrial, and (0) other regional and
lobal banks. .,
Large regional banks
The Credit du Nord was the largest and the oldest of the regional
banks, having been established at' Lille in 1848. It oontinuously ex
panded before the. first World War, particularly in the Department du
Nord. Its growth was aocelerated. after the war, and several small
oa.l banks were absorbed, as well as the relatively large Banque Gener
ale du Nord, in 1934. By 1939, the bank encompassed 15 departments,
with about 300 branches inoluding 11 in .
!I Nevertheless, the 'Banque Privee got intod1fficulties at the end of
1930 and was liquidated; its branohes taken over ;by bankr
affiliated with the Credit Industrielo
gl
The Credit du Nord apparently ma;tntalned friendly relations
the C,redit, Oommercial, which did not open branches in the' former's
territory (see p.89).
- 109
The bank had a Belgian affiliateythe Credit du Nord. Be).ge, With
head, office in Brussels , and 8 branches near the French frontier (cap-
ital, 15 million f'rancsjdeposits,lOOxnillion). It with
oertain Belgian groups control of the Union Bancaire du Nord (seep.
107), founded in 1928 for the purpose of extending long-term industri ..
al oredits (cf.the pra.ctioe qf the large deposit bapks).
The CredltdllNord mainta,inedits IIlOEJt impqrtant bus.inessconnec
tions Wi ththe teJCtite , sugar, and chemical industries. In general,'
thEt metallurgical and ooal industries of tbre.No:rthwere con
neoteq. with another northern bank, L. Du.pont et,Cie (group Credit In
dustrfel). The bOard ofd.irectors of the Credit du Nord wa.s composed
primarily of industrialistaand italso
inoluded two Belgian bankers . The ,principal items of the balance sheet
as of December 31,1938, were as followa-:
(in millions of francs)
ASsets Liabilities
Cash and' balances with bankers 288 .Capital paid
132
Bills 1,411 Surplus 135
Loans 482. Deposits' 2,049

85
Dividends
7
The. Societe Marseillaise du Credit Industriel et Commercial
was .anotherrelatively .,laree, independent' banking oorpor
.in 1865 it had continuously and by 1938,
, em"braoedabout 120 branches i'll.' Southern France and
The board of directors' was compos'ed of south.erninduatrialists, mostly
from Marseille. The Societe Marseillaise, through its branch in the
capital, often collaborated wi ththe Paris banks in finan
01a1' ventures; ,the larger part of its businesa, however, Pemaining re
gional incha,raoter. It had lmportantfinanoial'interests 'in the ship'
ping oil industries, in the southern export and import trade , and
in the Near East.!./ The financing of cotton imports fromFBY'pt,was.an
important part of its" bus.iness. The also thees
of severalloc.al ,enterprises: sh:f:,pping companies, soap
fa.otories ,etc. ' The main' items of 'its balance, sheet as' of December
31, 1938, were:
(in millions of franos )
Assets Liabilities

Cuh and balanoes with bankers
175
Capital paid in 100
Bills
'. 558
Surplus 60
Loana
,333
Deposits
933
Seo.u.ritieiJ I)lvidends 6
9
11 Two. directors belonged to Greek faJrdlies established in Marseilles.
- 110 ...
The unusually large volume of "loans" (on current account) in'
comparison with the of nbills"aresult of the bank's ex
tens ive industrial and trade connections, is the feature of these
figu.res. ' ,
I
The Ste GeneraleAlsacienne de Banqu8, previously mentioned as
an affi,liateof the Societe 'Generale; was established in 1881,
the German Government threatened to close the Alsatian branches of the
Societe Generale because' they were under' foreisn control. The bank
took a very active part in the expansion of Alsatlan industry. It
had about 50 branches 'in Alsace, 4 in the German Rhineland
(Cologne, Kahl, ,Saarbru.ecken), 3 in Luxemburg, and 1
in Zurich The board of' directors was, composed chiefly of prominent
industrialists1./ and several directors of the Societe Generale. The
main items of the balance sheet as of December 31, 1938,' are shown be
low:
(in 'millions of francs)
,.I$sets Liabilities
i
Cash and balances with bankers 587 Capital paid 'in 40
Bills 280 SUrplus 52
Loans 270 Deposits
956
Seourities 21 Dividends 6
The "loans" (on current were almost as large as the
"bills" --probablya higher ratio than in 8.D'3'. other French bank.' The
o&shreserveswere 'unusually high because of the unstable illternational
situation at the end of 1938, the ,effects of which were felt particu
larly in this region. ' ,
The Compagnie 'A1.gerierine, the last large regional bank to be dis;,.
cussed, eatablished in 1877 and grew. steadily f'romthe time of its
formation. Despite the large volume. of bu.sinEtsstransacted ,in Con
tinental France and ,the number of its. dome,sti.c branches, a ,major part
of this bank's bus.1ness in the colonies. The ComPagnie Al- '
gerienne financed industry and agriculture in North Africa, primarily
bygrantine commodity loans, by' discounting bills, an':1 by participating
in looal industrial enterprises'. The central office was located in
Paris, with 35 branches in (southern) Continental France, 90 in Al
geria, 12 in.Ttlnisia, 18 in Morocco, lin Spanish Morocco (Larache), 1
at Tangier, 3 in Lebanon (:BayreUth, T1[ipoli, zable) ,and 2 in Syria
(Damascus, Aleppo). The main items of the balance sheet as of De.cam
ber 31, 1938, follow:
- 111
(in millions of francs)
Assets - Liabilities
Cash and balances with bankers
Bills
Loans
SeOllrities
183
i,368
367
9
Capital paid in
Surplus.
Deposi te:'
Divid'ends
105
90
1,677
16
Regional banks affiliated with the Credit Industriel
The formation of a group of pr6vlncialbanks affiliated with the
Credit Industriel was described in the paragraphs devoted to that in
stitution (see p82). Some of the affiliated banks were fairly large,
but none of'tllem had total assets .exceeding one billion francs, as did
all those discussed in the preceding section. Most of them grew from
the merger o'f local banks or from the absorption ofsma.ller banks by'
larger Qrgan.izations. They were all strictly regional banks and de
votea their mainly to banking proper; however,
some of tilem particiPated at times in the"financial of the
Credit Industriel. They were also associated with the Union des
Banques regionales (see p.l07). .
The boards of 'directors to. all these banks were composed of 10
cal industrialists and bankers plus two or three directors represent
ingthe Credit Industriel. The largest were presided overy the the
president or one of the direct.orsof the Credit Indu-striel. The de
gree of of the Credit over its various affiliates
differed, being more pronounced in the case of affiliates recently re
organized under its auspices, and less marked in the case of the older
institutions which had had less need for outside support. The item in
the balance sheet of the Credit ,Industriel for its 'lnvestmentin af
filiates amounted to 40 per of the aggregate paid-in Capital of
theae banks.
The follo-Wingtable shows the principal items of the balance
sheet for each affiliate as of December 31, 1938, and the number of
1ta branches.
:- 112
Affiliates of the Credit Industriel
- Selected items of balance sheet as of December 31, 1938
of francs)_
Assets Liabilities
Cash Securi- Paid-in Number
and :Bills Loans ties capital De- Divi- of I
with and, posits dend branches
bankers surplus
Nanceienne de Credit Industrial.et de Depots 169 416 148 60 72 751 3
-160
Credit Indufftriel d'Ala8.oe'et de Lorraine 181 417 123 4 42 679 2 981:/
SteI\ronnaiae de Depots etde' Credit Industriel 78 444
233 4 65 686 2 220
Banquet. Dupont et Cie S. A. (Valenciennes) 125 III
3
60 439 1 - 36
Credit de l'Ouest (Angers) 101
224 '
98 15 39 419 1 68
Barique bert s. A. (Lille) 56 228 76 6 54 318 2 49
Credit Industriel de Normandie
95 176 61
5
40 313 2 58
Credi tNantais 66 135 60 2 18 256 1 40
Ste Bordelaise de Credit 58 142 45 1 38 21'6 2
53
Banque Regionale de l'Otlest (Blois) 44 58 27 14 121 1 100
Banque Regionale de I rAin (BOllrg) 15 47 27
2' ,10
84 40
Credit 13 1 3
24 3
--11..
-
Total 1,001 2,525 1,010 102 455 4,306 17 925
!I
Also 1 branch in, Basel (Switzerland) and 4 .in Luxemburg
- 113
Other regional and looal banks
Outside of the discussed in the two preceding sections,
there were probably less than a hundred regional banks with a branch
organization in France, a.nd about 200 local banks' without branches.
These banks, established in corporate form., were all relatively-. small,
being overshadQwed by the branch organization of the large deJ?0sit .
banks. A considerable number, without being affilia.ted with theCredit
Industriel, were members of the Syndioate organized by that bank, which'
a.cted as their Paris cQrrespondent (see Thefolloltlngta.ble
shows the position of the most important of these banks 'at the end <of
1938:, .
Head
Deposita
office
.surplus branches
(mil1ionsbf'francs )
Banque Bretagne Rennes 17.8 101
18 1909
:Ba.nquede l'IsereGrenoble 13.11-
35
6 1872
de Roussi11on Perpignan 2.2 13
2 1921
Banque Regionale du Nord Roubaix 10.0
37
2 1876
Banque Courtois S. A, TOulouse 11.5
53
6 1919
Ba.;nque Regionale du. Centre Roanne{Lo1rel20 .5
1-19 90Y 1913
Credit Nantais ,Nantes 18.0 230 36 1912
Crei!t Marseilla1s Marseille 8.11- 17 1927
:Banque SOlila -:BordeauX 30. O 36 3
1924
Banque Rurale S-trasbourg ,12.. 0
273
8 1904
Ban<1ue de Stra.sbourg Strasbourg .5.0 63 1852
11 The year oftheincorpQration of the bank. Some of them existed
long before as priva.te bankinghous8s.
gj About 70 of which were seasonal offices.
VII.Speoial.banks
The covered in th.is seotion operated in very. different
fields ,but. had.. one common feature:: ea04 was devoted to a specialized
function.
SteFranpaisede..Reports et Depots
The Ste Francaisede et Depots, :the oldest, of these spe
cial.banks, has already. been mentioned as one.of the banks controlled'
Qr the "haute banque
n
It was established in Paris in 1887 for the
pllrpose of granting l'oanaeollateraled. by securities. Its primary
fUnotiotl to lend assistanoe on.security issues and stock
operations. '. The' main items' of its balance sheet of December 31,
1938, as follows:
-114
(in millIons of francs)
Assets Liabilities
Cash on ha
Treasury bills
Bills
"Reports n
nd and at ba
and loans
nks 9.2
84.7
13.6
113.4
'. Capi and
Deposits
Profit
32.0

6.0
With the exception of two directors (one a former manager of the
bank and one representing the Banquede Paris _et des Pays-Bas), all
the members of the board represented firms of the "ha:ute banque
n

Banque.Nationale Francaise.du Commerce Exterieur .
Nationale.Francaise du Commerce Exterieur was estab
in 1919 -foreign trade (primarilyexpor.ts).
The initiative was taken by a group and industrialists who
subscribed a capital of 100 million francs, half paid in.
lis,ted the assistance of "the Government., which was approved by .the law
ofOotober 23, 1919. The a loan without interest
_-of .25 million francs and --for several years -- an annual subsidy of
about 2 million francs which was used to finance stud1'esof potent1al
markets for French exports In tum, . the Government had to approve
theselectton of the president and the general manager, and was repre
sented at the bank by two commissioners with pgwer to supervise all
activities of the establishment. The state -also received 30 per cent
of .the. profits remaining 'after payment of' 6 per cent on thepaid'-in
capital. The bank -was debarred fromestablishi:ng branches in France
except by arrangement with, the eXisting banks in the same locality.
The bank expanded very rapidly,partioularly ih the acceptance
business and foreign exchange transactions. It established COD;llec
tions with a great number otforeign banks, took a participation in
the Banque Francaiae'des Pays dtOrient and in the Banque Francaise du
Maroo, and opened branches in Milan and Genoa. The expansi'on was
overly rapid, however, arid in 1925 reorganization became necessary.
The paid-in was-wr1ttendownby 25 millionfrancsj the partici
pations were liquidated, and the branches in Italy were tra;nsferred to
theBanca Commercia.le Italians., wh-ich "thereupon became the
ular correspondnent. The bank subsequently resumed progress but never
again reached the flgures of 1924. In 1938, it had branches at Bor
deaux, Le' Havre, Lyon, and Roubaix.
The following table reproduces tb,e balance sheet at the end of
1938:
- 115 -
Banque Nationale Francaise duCommerce Exterieur
_Balance sheet as of December 31, 1938
(i:n millions 'of francs.)
Assets Liabilities
Cash reserves -21.1 Current "accounts
223.9
Bankers and correspondents 138.8, Creditors 25.6
Bills
Bills in course of collection 131.2
102.5 Capital
Reserves
75.0
26.2 '
SeOllrities 6.7 Collections 124.9
, -Loana
25.6 Aooeptances 149.1
Shareholders' liability 50.0 Guarantees 59.3
DebtoreJ per acceptances 149.1 Forward foreign 49.8
Guarantees f-or cus tomers 59.8 3.5 Sundry 'accounts
Forward foreign exchange 48.8 Profit and loss 4.5
SundI"Y' assets
7.7
Total 741.3 Total
These figures are, of course,ve'1!'Y small as compared to the bal
ance sheets of the large depos i tbanka or even of some regional banks.
But the loans and discounts of this bank were-all directed toward fi
nanoing foreign trade (aside from some possible holdings of Treasury
bills). Foreign trade also benefited from the bank's" grants of ac-
credits and of guarantees _on Ollstomers' commitments. The
banK: was one of the larges t givers of, aooeptances on the French market,
surpassed only the big deposit banks and the Banquede Paris et des
Pays-Bas. '
The bank's shares were held by the founders and were
traded but little on the Bourse. No divident was paid in 1932-36, but
5fr,anos was distributed in 1937 and 6.25 in 1938. In 1938, however,
the market price of the shares ranged as low as 17 -- 33fra.ncs.
_ The bank's board of directors was presided over by R.iLehideux, of_
Lehicle,uxet Cie, president of the Union Sundicale des Banqulers a,nd di.., ,
reotor banking corporations (see above, p. 67). The other
members of the board were mostly representatives of large banks and
banking houses (Banque de .Paris Societe Generale,
Comptolr d'Escompte, M:irabaudet Cie, de Neuflize et Cie, etc.) or
pre.1ients or'important industrial and (Establis
RUhlmann,!./Cie Transatlantique, Le Bon Marche.Y etc.).
!.I 'The largest chemical concern in France
gj one of' the largest department stores in Paris
- 116 ..;
Banque Francaise d'Acceptation
While the Banque Nationale Francasie du Commerce Exterieurwas
created to foster the expansion of French foreign trade, the Banque
Fra,ncaise d'Acceptationwas founded in 1929 to pt'omote the develop
. ment of Paris as an international maney market. Paris had always de
ferred to London in this respect, but with the sta"bilization of the
franc and the of a balanced budget under the Poincare
'Government, there was a large-scale repatriation of French funds and
"influx of foreign funds which produced great'liquidi ty in. the Paris'
market. To utilize these funds for,acceptance business, the new irr
atitution was launched by ,thefoliowing group of business banks, large
deposit banks, and institutions specializing in international finance:
Banqua de Paris et des Pays -Bas, Eanqua de 1 'Union Paris ienne, Credit \
MobiliaI', Credit Lyonnaid) Societe Generale, Credit Commercial, B. N.'
C.' I., Banque de 1 'Indo-Chine, Banque Beige pour l'Etranger,and
Banque Italo-Belge (ls'sttwoconnected with the Societe Generale de
Balgique.. The founders subscribed the entire capital oflOO m.j,llion
franos (24 million paid
The -bank immediately commenced operations on a large scale; at
the end of 1930,. the amount of acceptances outstanding exceeded half
a billion francs. However, the financial crisis of 1931 in Central
Europe abruptly halted the bank's de'velopment. It had acquired large
clalmBln that area. which were blocked by moratoria and by exchange
From then on,most of the bank's consisted
in gradually winding up its cominj.tmentsjnew operations were under
taken only on a minor soa1e<. 'Moreover, the bank became therepresen
of other French banks holding "blocked" assets in foreign coun
tries. Its operations on behalf of other banks are reflected in the
special contra items in its balance sheet: "Repatriation of foreign
clai1DSfor, account of customers" on the a.Bssts side, and "foreign
claims of customers'" on the liabilities aide
. On the whole, the bank seems to have liquidated most ofits fro
zen assets without large. losses. Its capital was preserved, but such
profits asma.yhave been made were used to amortize 16sseEJi and to set
-up reserves. The following table reproduces the main items of the
bank's balance sheetstn selected years during 1930-38:
- 117 -
Banque Francaise d'Aoceptation
(End of year - millions of francs)
Assets 1930
-
1932 1934 1936 1938
Cash and banks'
3 5
10 13 32
Bills 32 32
5 5
'12
Debtors per acceptances
eurrentaccounts
565
1
1.78
36,
53
4.1
31
10
42
6
Customers' foreign claims
48'
127
Liabilities
Capital pa1:d-in 25 25 25 25 25
Su.rplus . 13
12 15 11
CulTentaccounts.
9
40- .24
3 .
.,1''
Aoceptances
565 178 ,53 31
..42 ..
CUeJ.tomers' foreign claims 41 122
The presid,ent of the d'Aoceptation in 1938 was of the
managers' of. the :sanque de Parisetdespays-Bas. The vice-president.
was a dtrectqr of the Banque de 1 'Union Pa.risienne; twodlrect,ors
represented B6.lgian interests. The other directors were managers or
offioc;rrsof the fourid.ingbanks.. 'The shares of the bank were not
listed on any stock exchange.
Cie Parisienne de Reescompte
The Cie Parisienne de Reescompte was established in 1928by.a
grmp of Parisian banks under the leadership of de Neuflizeet Cie.,
It was also aimed at developing the Frenchm.oney market,eapecially
. for 1llternatlona1 transactions; in particular, 1t sought taa-ctas in
termf)diary for foreign banks, which were .. then building up im
portant.liquid funds in ]'rance, but whioh were notsufflcientlY well
Informedabout the.French market to undertake thelnvf?stmentof.these
:funds themselves. In praotice, however,lts a.otivities developed. more
Widely, along the line of the English "bill brokers". At first, the
oQmpany acted strictly as a broker; laterit began to bllybl11s for
ita own aooount in order'to resell the, or to put them "eIipension
lO

While at first its operations were exclusively in oomme:rcial pills,
the oompany later dealt extensively in Treasury notes, espeoially
a.fter1935,whe;n the Bank QfFrance started to make 30-day loans on
Treasury-notes maturing w.:tthin two years
The prinoipal items of the balanoe'sheetas of December ,1, 1938',
were a.s followB: .
- 118
(in millions ,of francs)
Assets Liabilities
Cash and at banks 0.5 Capital paid in 11.0
:Bills 360.0 Surplus
9.8'
Due for bills sold
70.7 Due.for bills bought 335'.4
Du.e to bankers '
40.7
Profit and' loss '
6.7
Caisse Centrale de Reesoompte
The Caisse Centrale de Reesoompte was established in June 1938 by
Lazard Freres, the Banqua de Paris et des 'Pays-Bas, and Morgan
to undertakeaotivities very to tp.ose of the Cie du Reesoompte.
Its creation, primarily at the in1tiativeof Lazard Freres, who
were the leading financial agents for the French Government
J
coincided.
wi tb grant of powers to the Bank of France to in open-
market operations in short-term commercial Treasury bills. The
Bank was forbidden ,to buy billa direotly from the Treasury, so that .
money market firms found a profitable field of operations in s,ubscrib
ing to Treasury.bills and reselling them to the Bank; alternatively,
they could rediscount them with the Bank at a slightly rate of
interest. in bills was in fact ,the back-bone of
money-marketa.ctivities in France in the last years precedlngthe war.
Nostatist1eal information is concerning the
Centrale de Reescompte, except that it had a. pa.id-in capital of'20 mil
lion francs. .
Special industrial credIt banks
Several banks were founded during the inter-war period in
order to finance particularbra.nches of industry or trade.Y Special
mention may be made of three such institutionsestabllshedunder 'the
auspices oftha Banque deParts et des Pays-:Ba.s. There a number '
of other small bankawith analogous fun(}tlons.
TheBanqueCotonniere was established in,Paris in 1927; it later
opened a bran6hEpinal{Vosges },o In 1938 the main items of its bal
ance sheet as follows:
fl corporatives"; one of the largest busi..
ness banks, the Union des Mines, oOl1lID$noed operatipns in 1923 as
a 'bank in this category.'
- 119 ..
,(in millions of francs )'
Assets Liabilities
Cash and a t
Bills
banks
,21.6
26.6
Capital and surplus
:C1.lrrent accounts
52
57.8
Loana
Investments
99
4.8
Aooeptances
Profit'
28,3
,0.2
Debtors per Acceptances
The Banqlie des, Prddui ts Alime:ritalres et Coloniaux. was also es
tablished in 1927 'to finance the grocery. trade. The principal items
of i tsbala.nce sheet as of March 31, 1939, werea.s follo'Ws:
,(in millions'of franos)
Assets Liabilities
Cash and at banks 14.1 , Capital and surplus
2.5
Bills
85
Deposits 40.0
toans AcceptBJices 4.9
,Investments 2.3
Debtors 4.9
The Credit et Commercial was established at paris in 1925.
The main items of its balance sheet as of September 30, 1938, were as
follovs:
(in millions of francs)
Assets Lia.bilities
Ca.sh and atbahks
Bills \
34.1'
14.9
dapital8,nd surplus
Deposits,
'16.9
,1+7.4
Loans
,15,9 Acce.ptances 10.5
Debtors per acceptances 10.5'
Installment credit
Financing coIlSum.er purOhases on an ihStallment basis was much
less extended . in France than ,in thet States The only field
where such operations acquired any' sig:p.ificance, although still very
limited by American standards , waein' the financing of car
A;few were establiehed for, th1spUrpoae; cOnnected
With. one of the automobile lDBJ).ufacturing Thes'e:tnclu4ed
the Diffus).on InduB_trielle et Automobile par Ie credit (DIAC)financ-,
ing purchas'esof Renault cars;. the. Societe poor Ie Financement des '
ventes a. credit (sOVAcl connectedw1th Citroen; and the Diffusion Ill-'
dustrielle Nati6nale",,(DIN) connected -With Peugeot

Some small orga.ni zations granted loans to particularly
-'120
for purchases of radios , furniture, etc.; bu.t their operations were on
a small scale. .
VII . Colonial and 'Foreign Banks
Although this report is devoted to the domestic French
bankiI'lB system, it would be incomplete without some reference to
colonial banks in Paris , "franco-foreign" banks
operating. abroad ,with French capital, andbranches of fo:reignbanks
in France.
Colonial banks of issue
The note-'issuing' banks in...the Frenoh colonies were privately
ownedcorporationa, most of which 'were controlled by the la.rge deposit
and bu.stness banks in France. At the same time, they derived their
note;.issue powers from special French laws and'sere subject to a.con
siderable measure of by the French Government: . There were.
alWays one or two:representatives.of the.State in the a'dmiIlistrations
of these banks, either as directors or as. special connnissioners ; in.
some oases the president or the managing director of these ins1:!itu
tions were appointed by the Government. 'Their financial. relatioIis:ti.ips
with the French State and with the respective governments of the colo
nies wereg(9nerally very complica.-ted; space dqes not permit elabora
tion of 'this sUbject.' ..
The operations of the colonial banks of issue were much less re
stricted than those cd.the Ba.nk of France. or of other European oentral
banks Although in generaldi:so'ountedbills oonstituted the bulk of
their assets, they also granted 'direot loans to industry and trade
Some .even took part directly in local ventures; the Ba.nque de l'Indo
chine .was in this respect.
The following table gives a list of these' banks with figures
shpwing' the amount of funds whioh they employed in 1938:
I Banks of Issue in Frenoh Colonies
of 1938 - in millions of francs)
Capital and Baserves Note Issue
Banque de l'Algerie 129
3186 282
Banque del'Indochine 263 1839 2225.
. 867'
Banque l'Afrique. Oocidenta1e
73
436
BanquEt de Madagas car ' 21 398 127
:Bap.que ,10 58 52"
:Banque de 180' Martinique; 12 70 36
Banquede 180 Reunion 22 65 33
:Banquede <180 a-uyane
2
22'
3
Banque de l'iEtat 91
638
Banque de. Syrie et 'du Llban 44 617
368"
- 121
The last two banks have been added to the list becauseeQf their
close similarity to the others, but they were not colonialbanks'of
issue proper. The Banque de ,I 'EtatduMaroc was established in 1907
as a Moroccan corporation,pursuallt to the decision of the Conference
of Algeciras. The capital was originally furnished by an
al syndicate, but by 1938 the bank was controlled by French banks,
primarily by the Banque de Paris et des' Pays-Baa French Morocco re
French protectorate rather thana oolony. The Banque de
Syrie et in 1918 to take over the branches
of, the 'Ottoman, :Bank in those portiotlS of the former Turkish Empire
whioh were placed under French mandate. It was controlled by the
large French banks together 'with some hoUses of the "haute banquette
Other oolonial banksY
',Anumbe:r other banks had been established by Fre.rich'yapital:
fpr 'general banking tionsin the oolonies Although some ap- '
peared from their names to be mortgage banks" practice '.. '
oharters were all drawn in very and theypartici'pat,ed in
all kinds of operations The two largest oolonialbanks --, other than
banks of issue -- were the Algerienne (alreadydisyussed...
with the French regional .. lll) and the Credit Foncie:r d'
Algerie etde Tunisie. The la,tter bank 'also carried OIl, business in .
metropolitan Franee although much less, tha
ll
the CieAlgerienne; it
, had branches in Marseille, Lyon, and Nantes. Outsidemet
ropolitan France i tsnetwork of branches included 90 in Algeria; 40.
in Tunis ia and Morocco, 2 in Syria (Damas oua and Aleppo)" 2 'ill the
Lebanon, (Beyrouth and Tripoli), one in Malta (Valetta), 1 in Gibral-:
tar, a.nd 1 in London. It had a controllinginterest in the :aa.nque '
de Sa1onique, 'established atSalonica., Athen, Istabul, ,and Mers1n.
In Frenoh terminology, the term "b8.nques '- is uaedonly
with respeot to colonial banks of issue. I
-122
The following table list of these.banks
a,s ls',avaiJ;3;ble, withfigures for their> funds and other 1ia
bilities .11 ' ,
Other:Ba.nka in FrenQh Colonies
(Endoi1938 ':.. in m.illions of
O&pital'and


195 1660
, Credit at 'de Tu,nisie!./ 185 '
2194
J3anque' de,'1'Ilnisle . ' 24
159
Banque 1 'Afrique du NotU
29 110
-"
27
62
Banque COmJner:!a.leAfricailie
. 13
6;
CredltAlge:r1en 26
43
:Barique de 1 'Union Nord Africa-ine
7
26
C'redi quais
10
51
Oredit' Gua.deloupeen ' 8 19
:B$.nque des IlesSt.' Pierre Miquelon ,
3
4
Cai8.:iedesPreta IlDIllobiliera a.u Mfl,roo 41 438'
de Credit'FonclerOo1onia,1 et de 18 70
Credit FO:ncier de l'OUeatAfriOl3.in
57
54
Credit de 1.0 105
Ste Fonoiare 'de Syrie ' 22 '3
Credit, Fqncier .'
,12 ' , 54
Credit Foncier del'Indoqhine21 167 52
'1.5

27
2
47
11
In addition 541 million francs of loans for the acoount of the
Oredit Fonoier,de Franoe.
gj
Figures for end of 1935.
II
Partlcipations in Credit HYpothecaire de l'Indochine, Credit Mo
bilierIndochinois, Credit Fonoier de l'Ouest Africain, Cie Immo
biliere de Saigon. ,
!I Controlled by Credit Foncier de 1lIndoohine. '
"5J Corporation for the administration of "monts de piets" (pawn shops).
Franco-foreign banks
In this oategory are .included a large number of banks of very dif
ferent'character, the cOlD.ID.on feature of whlchwa.s their role as a fi
nanoial link b,etween Frf3,nce and foreign iQOll,ntrlea Some of them per
formed a general banking business aimed primarily at fostering trade
relations between France and foreign countries; aimed particu
larly atlnvestlng French capital abroad. Most of. them -- at least in
11 ItwB.s not possib1e'to contra items.
- 123
the latter category ~ - were controlled by French groups, particularly
by" the business banks .and the private banking houses. Others were
foreignorganizations without French representation on their boards' of
directors, but whose shares or bonds were listed -on the Paris Bourse
and more or less Widely held in France.
The following table contains as oomplete a list as is available
of banksof.this t ~ r i j e " showing figures for their capital funds and
other liabilities.!I .
11 Some very small organizations have been omitted.
- 124
Franco-foreign banks at end of 1938
(in millions - francs
unless otherwise specified)
Capital and reserves Other
liabilities
Banque Franca.ise et Italienne
pour l'.Ain.erique du Sud (est. 1910) 212 1441
Banque Francaise du Rio de la (paper pesos)
Plata (est. 1886) 16 '74
BanClue Hypothecaire Franco
Argentine (est. 1905) 98 12
Credito del Rio de la (paper pesos, end of 1935)
Plata (est. 1886) 67 359
Credit Foricier de (est. 1910) 9 1
Credit Foncier de Santa Fe,{est. 1896) (paper pesos)
8.6 1.2
BanClue de Credi t Hypothecaire et
Agricole de l'Etat de Bahia (est. 1913)
'Credi.t Ebncier et Agricole de 1 'Etat (milreis)
de Minas eraes (est. 1911) 23 853
Credit Foncier Cubain (est. 1911) (Mexican pesos)
5 3
BanClue Na:lfionale du Mexique -(Mexican peso$)
(est. 1882) 17 165 I
Credit Foncier Mexicain
BaneoEl Fogar Argentino (paper pesos)
Hypothecario (est-. 1899) 30 57
Cie Fonaiere du Manitoba 0.6 0.2
Credit Fancier Franco-Canadien
- (Canadian dollars)
(est. 1887)
21 16
3anque d 'Athenes '(est. 1893)
(drachmas)
179
Remarks
Branches in Brazil, Chile, and Columbia
Argentine company; partly French capital, French
board. . . .
Balance of the bonded debt reti:6ed in 1938.
Groups Union Paris-Bas, Societe Generale de BelgiClue
Preferred and common shares listed on Paris Bourse
Argentine company; French and Belg.ian' interests.
Brazilian company,bonds listrd/onParis Bourse.
Interest in default since 1926.
Brazilian company, on Paris Bourse.
. /
In 1934 moratorium granted/to, company by a
Mexican law.
Until 1917 issued notes. committee headed
by de Paris-Bas, Shares,bonds listed on Bourse
Majority of the board Argentinians.
Paris
Canadian and bonds listed. on/Bourse
Group Paris-Bas. Shares and bonds listed on .
Paris Bourse .
Greek company. Group UnionParisienne.
American affiliate: Bank of Athens Trust COIIl;pany,
New York.
125
Capital and reserves Other
liabilities
Banque Ottomans (eet. 1863)
20.0
Banqaeaypothecaire Franco
Hellenlque (est. " 15.9
Banquede Saloniqtie (est.' 1888)
131
Banque Franco-Bulgare{es t. 1929) (levas)
54 318
BanqueFranco-Serbe (est. 1910) 28 292
BElnq'Jie Franco-Pol onaise' (6S t. 1920) 41 449
Credit Foncier a Varsovie (zlotys)
(est. 1825) 20 226
Credit Foncier du Royaume (pengoe)
de Hongria (est. 1869) 5=8 10
Cie CentraledePlacl7mentae't de (gUilders)
PretsFonciers (est. 1930) 9.5 155
Credit Fencier Egyptian (Egyptian pounds)
1880) , 9.9
Unien Fonciere d I EgY.Pte 1905) (Egyptian pounds)
0.5
Caisse Hypothecaire d'Egypte (Egyptian pounds)
(est. 1903) 46 41
The Land :Bank of Egypt (Egyptian pounds)
(est. 1905)
2.1 3.2
Societe des Monts de Piete
42.6 6.5
Egyptien(est. 1872)
Remarks
,Turkish Company. Committees in. London and Paris.
In Paris"Bas and Union Parisierme.
Controlled by Banque de l'Union Parisienne and
Banque d I Athenes.
Affiliated with the Credit'Fancier d'Algerie
et de Tunisie.
Until 1938 Banque Franco-BeIge et Balkanique.
Groupe Banque de Paris -Bas and Ste' Generale
de Belgique.
Controlled by Ottoman Bank. Group Paris-Bas,
Union Parisienne. . .
Group Paris-Bas, Union Parisienne, etc.
Polish company, Polish board; bonds listed.
at Paris.
Hungarian offi cial mortgage loan bank. Bonds
listed at Paris. One director represents
Credit Foncier de France. .
Dutch company. by Lazard Frares.
Bonds listed on
Egyptian (}'oIIlpany. Shares ahdbonds listed on
}>aris Bourse. Parfs-Bas, Credit Lyonnais,
Comptoir d'Escompte represented on board.
Egyptian company and boa:rd. Shares listed on
Paris Bourse.
Bonds listed on Paris Bourse.
Group: ste'MarseIliaise de. Credit.
:French company. Administers pawnshops in
Egypt and Near East.
- 126
Capital and reserves' Other
liabilities
Credit Foncier dtOrient 46
(est. 1910)
Franco-Chinolse pour Ie (June 1939)
Commerce et Itlndustrie (est. 1922)
93 527
Bangue Franco-Japonaise (est . 1912) -
BangueIndustrielle de Japon
(est. 1900)
Bangue Franco Asiatigue (est. 1928)
Bangue Commerciale pour 1 'Europe
du Nord (est. 1921)
Bangue Exterieur de l'Espagne(est.1937)
Ste Francaise de Bangue et-de
(est. 1898)
ste BeIge de Credit Industriel et
Commercia"le et de Depoiis(est. 1903)
Cred.tt Franco-Portugais (est. 1895)
French Amertcan Company
(est. 1919) .
Ste Generale de Bangue pour
et les colonies (est. 1920)
Anglo-French Banking Company (est. 1928)

British French Discount Bank (es t ". 1928)
(June 1939)
7
48
(yen)
84 1048
(end of 1937)
25.4 12
62 803
lQ
49 657
131 80
(United States dollars)
71 35.6
"..,(Poll...V).ds sterling)
151 '748<"
Remarks
French company. Some Belgia.n interests.
Mortgage loans and realty business in the
Near;Eas t. . .
Took over defaulted Banque Industriellede
Chine. Connected mainly with Banque de Paris
Bas. French and Chinese governments each
represented qy a commissioner.
Interests of Societe Generale and other
banks (probably also of Rothschilds).
c!apariese .eompa.n.y. Shares on Paris
Bourse. '
Former Russo-Asiatic Bank.
Affilia.ted with Moscow Narodny'Bank.
Affili4ted "lith Moscow NarodnyBank.
affi,liate of the Ste Generale.
Belgian of the Credit Industriel.
Portugese affiliate of- the Credit Lyonnaia.
Affi1+ated with Comp"'.;oir d tEscompte .and the
Trust C'ompanyo'f NeyJ York.
Controlled by the Ottoman Bank - head office
in: LOtl,donand principal operations in Greece.
- 127
Foreign banks in France
A number of foreign banks were represented in France by branches
or subsidiary institutions. Among theFrench-incorporatedsubsidi
/" '. , #'
aries of foreign bankEl.were Morgan.et Cie, the National City Bank of
New York (France)1.!Barclays Bank (France) Ltd., the Banque BeIge pour
1 'Etranger (France), affiliated with the Societe Generale de Belgique
and the Credit Anversois S .A.F. Branch offi.ces were maintained in
France by theChaaeBank, New York (foreig;t banking subs idiar:r
Chase National Bank of New York) "the Trust Company of New
York, Westminster Foreign Bank Ltd. (foreign banking subsidiary of the
Westminster Bank Ltd. of London') , Lloyds and National Provincial for
. sign Bank Ltd. (joint foreign banking subsidiary of Lloyds -Bank' Ltd ..
and the National Provincial Bank Ltd. of London), the Bank of London
and South America Ltd., the Royal Bank of Canada , the BanqueCanadierme
Nationale, the Banca Commerciale Italiana, the Banco di Roma, the
Credito Italiano, the Banco de .Bilbao (f}pain), and the Yokoha.maSpecie
'Bank Ltd. Two other New York banks, the .Bankers Trust Company a.nd'the
Central Hanover Bank and Trust Company,'maintained representatives in
Paris, as did Martins Bank Ltd. of Only the -rore{gn banking
subsidiaries of the British,'clearing banks maintained branches in
France outside Paris ?:at these banks 'developed a Widespread networkof
branches in industrial ,exporting, and tourist centers.11 .
The foreign banks were active not only in handling the financial
affairs of foreign c.ompanies and in serving the tourist trade 'and the
foreign colonies in France; many of them also engaged in
operations in the Paris money-and .exchange markets. Furthermore ,the
British banks with their large branch arganization,built up a.consid
erable loca.l clientele., especially by financing French exports (e.g..
from the silk industry at Lyon and the cotton industry in the North).
Frenoh imports were almostentirelyffnancedby French banks, since
they were in a better position to ascertain the risk of this busii.less.
Y A SUbsidiary of the International Banking Corporation, which was
in turn affiliated with the National City Bank of New York.
gj Except that the Guaranty Trust Co. mainta.ined a branch in La
Havre.
21 Barclays Bank (France) Ltd. was established at Aix-Ies-Bains,
Biarritz, Bordeaux1 Boulogne -s'U.r-mer , ',Cannes, La Havre!, I.\Y'on,
Marseille, Menton, Morite-Carlo, Nice, Rouen, Alger, and Gran.
Lloyds and Foreign Bank Ltd. 'maint&1ned
- branches at Biarritz, LeHavre, La TOl1quet, Paris Plage, Lille,
Monte Carlo,Pau, a:n.d st. Jean de Luz . The Westminster
Foreign Bank Ltd was established in Bordeaux, Lyon, Marseille,
and Nantes.
- 128
IX. Public Credit Institutions--Collection of savingsll
After the First World War, there was in France a tremendous
growth in the size and range of public credit institutions, i.e. non
profit organizations (or at institutions in which profits were a
secondary aim), regulated and .controlled by the government. The de
gree of gove:r:nment control differed widely among -the institu
tions ; hence,' they have "public and
semi-public" credit institutions. These organiza'tions' comprised the
so-called "public sector" oftb,e banking system, which gradually came
during the inter-war period to rival seriously the "private sector".'
The largest public cre,dft institution, the Caisse des Depots' et Con
signa.tions; along controlled at, the'endof 1938 lunds
100 billion francs, while the funds then at the disposal of all banks
in the sector" amounted to no more than 80 to 85 billion
franos .-.
In general,
I
theBe institutions maybe divided into those which
were concerned primarily with the collection of savings, those which
managed State credit, and those which served the credit needs of
special economic groups. '!he institutioris which may be placed in the
first category, to which this section ie, devoted, included the Caisses
d 'Epargne Ordinaires (ordinary savings banks), and the Caisse Nationale
d 'Epargne '(Postal Savings' SYE?tem). The ordinary savings banks, which
were purely local insti"bt-ltioris, were of a public or semi-public char
acter, in accordance with of the public role of
such institutions. The Postal Savinge System provided 'an alternative
repository for small savings; it paid a lower rate on deposits and was
particularly by perspns in rural areas without access to
ordinary savings banks. However, it also attracte,cl deposits from towns
people, who were attracted by certain by the
System. All savings institutions were required to place deposits re- '
ceived from the public with the Caisse Depots etConsignatibns, an
lminenselY'influential body in the field of State credit (see next sec
tion).
The Ordinary-Savings Banks (Caisses dtEpargne Ordinaires).
The;rewere three kinds of ordinary savings banks: the caissee
autonomes, the ca1sses municipales, and -- rarely -- the
mixtes, a combina.t ion of tl',le two. The minicipal type was most common
during the last century, but there had been an increasing number of
transf,ormations from the minicipal to the a.utonomous status in recent
11 Prepared by of the Federal Reserve Bank
o:r New York.
gj Of course,there was a much more turnover in the funds of
banks engaged in short-term operatioDS;the Caisse des Depots et
Consignations invested the bulk of its funds in long-term. govern-'
ment securities.
- 129
years. These t.wo types were dis tinguished from each other, as to rules
and procedure, only by the manna1" in which their boards of directors
were chosen. 1n the case of banks originally established by municipal
i ties, the direct6rswe:re appointed by the local governments. , The di
rectors or the banks which had been established by private persons
(usually'with philanthropic motives) were self-perpetuatinB by the
of "co-optation", where'by the directors, themselves chose
successors for retiring colleagues. Directorships were. honorary po
sitione, usually held for
In 1938 there were 559 ordina:rY savings banks in'metropolitan
France, having a total of 2,229 branches. Only one bank was all'owed
to be set up in any one city or town, and no bank 'could establish a
branch where another bank or the branch of another bank already ex
isted. A savings bank was thus named according to the city in which
its head offi96 was located, which was .sufficient to aistinguish it
from anyq;ther savings bank. The,Caisse d'Epargne et de Prevoyance
de Paris/had a branch in each arrondissement (district) in Paris as
well as pranches in various other towns in France, and no other bank
could establish either its head offioe ora branch in Paris or in any
of' those towns . -The effeqt of has been, as desired,to
rtile out the posaibleasglomeration of competing savings banks in the
large centers and to prpvide as many communities as possible with sav
ings facilitfes. '
Legislation and supervision. The legislation dealing with or
dinary savings banks in France dates back to 1835, and since that date
has served primarily merely to modify and expand the o.riginal law, ,
whioh still remains in effect. The Law of 1835 prOVided thatauthbri
zation by an ordinance issued by the head of the state (then the King)
must De obtained for the ,establishment of a. savings bank, that the
banks' were to be vested with the status of & pUblic law body, and that
deposits by them were to With the Treasu;y (as
. amended by the law of 1837, with the Caisse' dee Depots et Consigna
tione, under Treasury guarantee).
The law of July 20, 1895, 'Which restated and expanded' previous
legislati.on, remains the real basic statute of the ,savings ,banks. A
mong the matters covered in this law are the relations betweeri the
Oaisse des Depots etConsignations and the savings banks, rules gov
erning the interest to be paid by .the Caisse des Depots and the banks,
rese1:'Ve requirements for the Caisse, and investments of the reserves
of banks and of the deposits iheld' by 'theCaisae des Depots. Sav
ings bank'regislation since 1895 has Aealt primarily with the maximum
for i:adividua1. deposits and delineation and 'extension of
'the 'investment fields allowed to th-e Ca,issedes Depots :and' the banks,
and has' done little to change the original structure' C?f the savings
bAnks1stem. In addition- to formal legislation, there has been a se
ries of deoreesand instruotions issued by. the State,the "Ministry o'f
11I1a;nQe, and the Ministry ofLB.bor, with the purpose' of interpreting
ani enla:rging on the 'administrative provisions of the laws so as to
-,130
1nau:re uniformity of procedl1reon the -llartof the banks
Except for the provisions regarding reserves, interest, in
ves'tment of funds, and audits, the administration of each savings bank
is largely det'ermined _by its own rules and statutes and its ownbdard
of I! the law of 1895' Commission Superie
ure des Oaiss6s. d'Epargne, to consider questions of "general policd"J it
oonsistedof twenty-six,members, including two senators, two deputies,
thirteen men who were either presidents or members of theadministra
tive oounoils of individual savings banks (two of whom were always
from Alsace-Lorraine ),theDirector of the CaissedesDepotset Con
signations, the Direot,or of the Caisse NatioI"Ale d 'Epargne, three mem
bers from the Ministry of Hygiene, and three persons experienced in
the field. qf thrift. '
The accounting of the .. ordina.:ry savings banks was placed by the'
dearee of September 20, 1896 under the control of the Inspection qen
erale dea Finances The savings banks and their branches were required
to produce their full records for the auditors assigned to the depart
ment (administrative area) in which they were located.
Deposits. The French savings banks developed with the desire to
provide the traditionally thrifty FrenChman of limited means an oppor
tunity for secure investment of his small savings. Of the ten million
and more depositors of which the savings banks could boast, probably
over half were minors of school age. This reflects in part the'suc
cess of the, educational program for the. promotion of thrift which the
savings banks have undertaken' for many years. The high proportion of
'minors 'also suggests an evasion of the spirit of the law regarding
ts; since every member of family may have an account,
the maxlmumdeposit of any one person depends on the size of his fam
ily. The next most numerous class of individual depositors was the
small bus.iness. man, followed by.the industrial worker, the farmer, the
olerk, the domestic servant, the teacher and other members of the lib
eral profession, etc. In recent years the comparatt'vely high interest
paid on savings deposits attracted from the commercial banks the funds
of themorewell-to-domarchant. Thefigure'representing-the excess
of total deposits (versements) over total Withdrawals (retraits).
throughout'the system during a given pariodoftime thus served asa
fairly guide to the confidenoeof the masses in the economic
and potitical condition of France , and was published -evers fifteen
dais in the Journal Offioiel. Apers1stE,nt excess of withdrawals was
o,ten an ind;lcation to the government people questioned the
gu.arantee of the TreasuIj and the of the currency.
, At the end of 19,8, there wer'e over 10 mtlllon depositors in the
ordinary savings banks, with total d<itposits of 37.5billion francs.
Anonymousaocounts' and fictitiOusn8.Ines were forbidden. No person was
to have more than one savings aooount with 'the. ordinary banks
or toha.ve an account both at an'ordinary savings bank and with ,the
Postal Savings System. Acoountawere transferrable from. one savings
- 131
If an account remained on the banks of a bank for a period of
th.irtyconsecutive years without the occurrence ofarry transactions
affecting it, such as a deposit, withdrawal, or presentation of the
passbook for the recording of interest, two-fifths of the balance
(three-,fifths in the case of' company d..eposlts) to the bank.
If the balance'exceeded fifty francs, the bank was required to adver
tise locally and through its before taking this step.
The savings banks turned over all their deposits to the Caisse
des Depots et Consignations which then invested them, a,s prescribed
by law, in obligations of the Government or gu.aranteed'bY the Govern
ment, in obligations of local governments, and in'certain other ap
proved securities. The yield on these investments was used to pay
interest to the savings banks at rates in multiples of 9.25 per cent,
after allocating to a general reserve: an amount equal to at least 0.25
oent of the deposits of' the savings banks with the Caisse. In
1938,the savings 'banks received interesliatthe rate of 3.75 per dent.
The rate ,of interest received by depositors in turn from the savings
banks was required by law to be not less than 0.50 per cent and not
more than 0.75 percent lower than the rate paid by the Caisse to the
banks (law of-April 30, 1931). In 1938 the rate of interest paidpn
'savings by the ordinary sav1ngsban'ks 'ranged from 3 to
per cent.
- 132
Investments. The expenses of the savings banks were met out of
the difference 'between the' interest received from the Caisse des Depots
and the interest which they paid to their ,own depositors. After all
expenses and interest were paid, the balance was turned over to the 80
,called "fortune personnelle" of the 'banks. The law of July 20, 1895
described the ,"fortune personnelle" as a reserve and guarantee fund for
each savings bank' consisting of (a)' endowments , legacies, etc. ,which
the bank mat have acquired from its,founders and subsequently; (b) the
diff'erence between interest received from the Caisse, and interest paid
out plus expenses; and (c) interest on (a) and (b). '
The same law outlined the proper field of investment of a bank's
"for,tunate personnelle" as follows: (a) obligations of the Govermnent
01' guaranteed by ,the Government (such as railway bonds); (b) readily
negotiable, unattached obligations of departements or communes; (c)
issues of local, Chambers of Comeroe jed) obligations of the Credit
Foncier; (e) premises constructed for the business of the bank or for
hire,to the State. Subsequent laws provided that if the' "fortune per
sonnelle" ofa bank exoeeded 1 per oent of its total deposits, a cer
tain proportion thereof (varyingwith'the amount of theexoes!3) oould
be invested ;in issues of sound local institutions wi thin the departe
ment suoh as well-known publio utilities, oo-operative oredit sooie
ties, people's banks and farmers' associations, and in public works,
provided the term was not longer than five years. Laws enacted'in
1917801130 made it pQ8sible for the banks to grant loans to both ,the
people's and regularcommerc'ialbanks ,andto allow advances for one.
or two months to State oivil or mill tarypensioners. Aotually, how
ever, the boards of direotors of ,the banks have tended to keep most
of :these funds on ourl:"ent acoount at the Ca.isse des Depots rather than
to expose themselves to the inherent :rislm of more active investment,
At the end of 1937, the total "fortunate personnelle" of the
sa.vings banks equalled 1,272. million franca,or about ;.5 per oent of
th.e total amount owed to depoe 1tors. On the same date, .the reserves
, a<raumu.lated by the Caisse des Depots for account of the savings banks
generally ,amounted to 3,764 miilion francs, or 10.1 per oent or its
deposit obligati()ns to the savinge banks. A decree of November 12,
1938,providedtbat a:n:y sums a.coumulated in these reserves in exoess
of 10 per oent of the depos.1ts of the se:vings banks with the Caisse
should. revert to the Treasury.
Ordinary savings :Banks in and Lorra1ne. The ordinary sav
, ing banks' of Alsaoeand Lorraine, about 130 in pumber, have a.lwa.ys
been more or less in a clgss by themselves. They were aLl !municina.l
ill the sense that their boards ofdireotors were named 'by the lmlnl01
pal governments. While the depos its of some of the banks had.R .state
guarantee and were required to be turned over to the Caisse des De
pots at Consignations', the majority of these institutions,. inoluding
the more important ones ,:ma.D.8Bed their own funds" whioh were guaran
teed by the munioipal governments rathertha:p. by the State.:
- 133
, ThePoatal Savings System (Caisse
The law of IB81established a Postal Savings System, modeled on
the :.British aystem, and placed the direction a.nd supervision of its
operations in a bureau entitled the Direction de la Caisse Nationale
d'Epargne within the Ministry of Public,Works, Post and Telegraph.
The Postal Administration re,presented the State in -the relations of the
postal depositors. The primary responsible managing
offioial of the Direction was an a.ccountant who was naIJledby decree.
Every post office in France, Algeria, Corsica, Monaco and Tunisia
wa.s authorized to accept deposits and make reimbursements todepoai
tors. In most respeots the postal and ordinary savings systems were
sUbjeot to exactly'thesame laws. The rules for minimum and maximum
deposi ts, the ,limit on withdrawalB in case of emergency, ,and the dates
of orediting a.nd ca.pitalization of interest applied to both systems
similarly. The depositor 'could buy rentes aIld obligations of the
railway-sand the "P.T.T.
n
, (Administration of Post, Telegraph and
Telephone) with his postal savings and the state pensioner
could get an advanoe trom the Postal Savings System in the same way
as from an ordinary savings bank. 'The interest rate paid by the,
'Postal Savings System to its depositors was f?et by law at 0.25 per
cent less than the rate paid by the orginarysavingsbanks, in order
to reduce the appearance of direct government oompetition in the sav
ings field j in 1938, ,it was, fixed at2. 75 per cent.
The Postal Savings System differed from savings
banks in the 'provision of deposit transfer facilities. A depositor
could withdraw his saviDgsdirectly froID. any French post of'ice he
designated, after sending notice of request for such withdrawal to
the branch of the Dlrectlon at which the record of his account was
kept. It, Vlas this convenience whlchled many to ,prefer the Postal
SaVings System 1nspite of the lower interest rate,earned. The trans
fer process was facilitated by the centralization of accounts at the'
Directlonandits branches. The record ofaveTS' pass-book lissued in'
the 'depsrtementa of Seine,' -Se1ne":'et - Marne, and Seine-let. - Oise,
and'o:fatl1s8ued through the Army or the Navy, through post offices'
in qolonial or mandated areas, or through French consuls in foreign
01ties, was kept by -the head office of the ,Di.rectionat Paris II' The
branQhes of the Direction, located in various departements, kept a
reoord. of each account open:>d in the iiepartem.ent or departements as
signed to them. Agreementsw1th Italy and Belgium made/ possible re
ciproca.l transfers from one national savings system to another, with
out charge to the depositors.
It has been noted previously that the of the Postal
savings S1stem had to be entrusted to the Caisse des Depots et Con
signations, w111 chmanaged their investment a,ccording to the, same' rules
and polioies followed 1;nithe1nvestxnent,of:fhnlds,of the' ord.i:na.I7sav-'
ings banks.. At the end of 1938, there were more than 10
arate savings accounts with System, claiming a
total of_26 billion francs. While there wer,e almost exactly the same
number of accounts in the ordinary savings banks, the average deposit
in the latter was 3,764 francs as compared with only 2,410 in the
Postal Savings System.
x. PUblic Credit of State Credit
The role of the Bank of France in regulating credit conditions in
France and in managing state credit has been discussed in'a previous
section. The ,Bank of France did not have an exclusive position in
field, -however, and indeed until 1938, it had not received powers
to conduct open-market operations. The of state credit was
shared by various 'other instituti.ons, by far the most important of
which was the Caisse des Depots et Consignations. The very large
amount of deposits placed with this institution by the savings insti
tutions and by soclal insu!,anc,e funds, trust funds, etc., made it an
immensely important source of credit for the Treasuri. ' Its opera-,
tions had equally important influence in the money market gene:r:ally,
especially since during the inter-war period,wIth the -ever-increasing
role of government ine!conomic life and, the growth in the si ze and
I " "
scope of public a number of other speoial institutions
were establishedtoa.ssistin the of state' credit; the most
of' these bodies was the Caisse Autonome d'Amortissement,
which handled the ,Treasury s funding operations and the amortization
of the public debt.
CaiSse d,es Depots. et Consignations
The Caisse des Depots et Consignations, by far the largest of the
public credit institutions, was an autonomous agency under the super
vision of a Commission de Surveillance,conaisting of two senators e
lected by the Senate, two deputies elected by the Chamber of,/Deputies,
two members of the Council of State named by the government-, of
the presIding judges of the Courdes Coxnptes, the goyernor or deputy
governor of the Bank of France, the president of the Chamber of Com
merce of Paris, and the Director of the Mouvement des Fonds
in the Finance Ministry. Mempers of the Commission deSurvefllance
were named for three-year terms, were eligible for reappointment,. and
reoeived no compensation for their servioes. The Commission chose a
president from among its own members.
The Commission de Surveillance" however, was a consultatl,ve body
oonoerned only with the general policr,y of the Caisse des Depots et
Suggestions for modifioations of 'the policy or oper
ations of the Caisse were made by the 'Commission to the President of
the Republic through the Ministry of Finanoe. The actual administra
tion of the varied and oomplex operations of the Caisse was entrusted
to the General Manager (Direoteur General) ,who was named by the Chief .
of State.!1 He could be removed only ,on the demand of the Commission.
11 The General Manager was also the direotor of the opera
tions of the Caisse d'Amortissement.
- 135
.
Three deputy-manage,;rs were also appointed by the Chief of State, and a
general cashier by the Pres.ident -af the Republic.
'"
The Caisse des Depots had been estaeblished in 1816 for the manage
ment of funds to it either voluntarily or pursuant to legal
dispositions. In 1837, it wasdesigna.ted as for funds col
lected by the ordinary savings banks, and played the same role for the
Postal Savings System when that organization was established. in 1881.
It gradually developed into not only the largest financial institution
in France but one of the largest in the world.... Its growth was partic
ularly marked after the first World War.' By the end of 1937, it was
administering fundsamount1ng to 105.4 billion francs, derived as fol
lows:' " . .
"Services Propres" - (milliops of
Trust funds ("Depots et Consignations) 6,183
Funds of mutual benefit societies 869
Funds of ordinary:savi:tlgs banks 37,406
Res erve fund of savings banks 3,784
.Liquid funds of social insurance organizations 1,280
49,523
'CServices Geres II
Postal Savings System 27,671
National Old Age Pensions Fund 18,320
Social insurance funds 4,627
Life Insurance Fund 2,013
Workers pension funds
1,553\
Various funds
1,669 .
55,853
105,376
The funds of the "Services Propres
lf
were entrusted to the Caisse
f1ith norestructions as to their 'employment except, of course, those
laid down by law for the general operations of the institution. In
administering these funds, the Caisse acted simply as a banker, and
resulting profits were held as a geileral.reserve or eventually re
verted. to the Treasury. However, for the funds comprising the "Serv
ices Geres", the Caisse acted merely as agent, f.ollowing specific
instructions as to their disposition, and orediting any profits to the
indivi,dual reserves of each account.
The disposition of this enormous acdumulation of funds in 1937
is shown in the following table:
- 136 ':"
Assets of the Caisse de.sDepots as of December, 31, 1937
(in millions of.francs)
T. Cash and bills
1. Cash
2. ' Current accounts
3. Treasury b.ills
4. Other bills
Total
II Inves tments
5. Government bonds
6. Notes and bonds of railway companies
(with State guarantee)
7. Bonds of the Credit Foncier
8. Notes and obligations of the Credit
Agricole
9. 'Colonialandmunicipalloa.ns
10. Corporate seGurities
Total
III. Loans (medium and except for item 18).
.11. Loans to the State for housing
developments
, 12.
Loans' to the State for other specific
pu:rposes!.!
13. Loans for public works: To the State
14. " n " n To local governments
n It It II To the Caisse de Credit
15
aux Departements et aux Communes
16. ,Loans to railway and shipping lines
(With State guarantee)
17. Loans to local and' colonial governments
18. Other loans
Total
19. BUildings and real estate
Grand Total
79
4,060
7,881
659
12,679
47,003
10,196
1,722
1,583
335
909
61,748
9,130
3,195
1,644
2,371
462
2,265
10,851
616
, 30,534
415
105,376
11 F.or electrification and water works, agricultural loans, etc.
- 137
The immense importance of the Caisse in the field of state credit
is evident in the foregoing tabl/?_ The direot liabilities of the
State (items 3,'5,11,12,13) totaled 68.8 billion franqs, or nearly 20
per oent of the'internal French public debt at the end of 1937 (360
bi11ion' francs) _
The of the funds deposited with the Caisse by the two'
savings systems was severely restricted by the. laws of 1835 and 1895.
Not more than one-tenth of the deposits was to be kept in cash or on
deposit with the Bank of France or the Treasury (depos'itswith the
latter were not to exceed 400 million franos, to a law is
sued in 1927)- The balance had to be invested in Government bonds,
bonds guaranteed by the State (such ascertain railroad, steamship,
a.nd post-telephone..telegraph issues),'bonds'issuedbycities, departe...
ments, .and cp,a.mbers of commerce,' and agricultural credit bonds. In
1931 the list of permisstble investments was extended to includecer
'tain French and foreign industrial approved by the Minister
of Finance _ Complete secrecY was maintained concerning the.seouri ties
involved so as to prevent speoulation in those issues.
, A certain portion 01' the funds managed by the Caisse des De,pots
had to be kept in liquid, form to meet current demands for withdrawals
of'savings deposits, payments of insurance,etc. The' larger part of
the liquid funds was kept on deposit with the Bank of France, where'
,the' Caisse had four .separate accounts , reported by the Bank in the
total of "Comptes oourants et oomptes de depot de fonds tt. Another suril,
varying widely wtth pircumstances,waskept on deposit at the Central
of the Treasury itself, in the form. of' five separate accounts,
wh1cp. have been on oocasiona very valu.able resource for the Treasury.
The rest of the short-term funds of the Caisse were invested-largely
in the notes and bills of the French and foreign 'governments , and to
a oertain extent in "pensions" on fNch notes (sho'Wnby 'item 18 in the
table)" As has previously noted (seep. 56), in the early-tthir
ties the Caisse frequently came to the aid of the banks --and indi..;.
rectly the Treasury - ... by taking "en pension'" short-term Trea.sury
bills. With the expansion of the "open market" activities 6fthe Bank
of France, the active role of the Caisse in this field was much re
dUCed, al i t to be a very large holder of short..;.term
Treasury 'paper ":
Medium-term loans of the Caisse. ranging from two to five years
oonstitute the bulk of the assets shown in Class III in the foregoing,
table. Some of these loans were made directly by the Caisse under'
Government. guarantee to provincial and municipal governments , colonie.s,
ohwmbara of 'commerce, public work enterprises, Most of them,
however, were made through the Minis try of Finance. Each. year the bud
get bill authorized :the Treasury to bO:t"row up to certain limits for
thE:l purpose of re-lending at low interest to agricultural credit so
oieties, and to corporations for the electrification of rurald.is:tricts,
for workers' housing schemes, for public works, etc. The rate paid
by the Treasury to the Caisse was the same as the rate paid to the
savings banks. '. .
Long-term investments were made almost entirely in, government and
government guaranteed bonds. InvestIl}eIlts incorporate securities
(item 10 in the table), as authorized by the law of 1931, remained 'at
a relatively small figure.
Caisse Autonome d'Amortissement
TheCa-isse Autonom.e d'Amortissement was established in August
1926, in conjunction with th.e financial reforms'of the Poincare Govern
ment, for themanage:ment ahd graduai reduction' of the debt
of the Treasury represented by the Bons, de la Defense Nationale. Its
functions were later expanded to encompass funding operations (conver
sion of short-term Treasury obligations into long-term bonds) and the
generalamortizatiori of the public debt., Certain revenu,es were as- ,
signed to the Fund for this purpose , e.g. the yield of the, tobacco
monopoly (including the matoh monopoly ),the returns from 'the estate
and ,th:e estate transfer taxes, and any eventual budgetary surplus.
Furthermore, it was empowered torelssue the.B.D.N.,which,'it had re
tired.
In 1937, for example the Caisse derived 6) billion francs from its
and raised a further 12.4 billion from borrQ.wings,
of 18.4 billion of disposable funds. It allotted. 17.4
blll.ion francs to amortization of the publi-c debt, and increased its
'cash. balance from 2.4 billion to 3.4 billion at the end of 1938, of'
wl'fich 2.4, billion wasdeposi teo. with the Bank of lfrance.. The net a;,..,
mount Of debt by the Caisse in 1937 was consequently 5
11onfrancs. This does not me&n, however, that the governnient,de'bt .
was actually reduced,py this amount; the government was regularly bor
rowing (on the market and at the Bank of France) while the Caisse was
continuing its redemption operat,1ons.
The Caisse at times used its liquid assets to extend short-term
loans to the money market ("pensions
n
), aiming at easing a tight mar..;
and supporting public credit. On the other hand, wh.en the 9aisse
accumulated funds with the Bank of France, a deflationary pres'Surere
suited.'
Other institutions in the field of State credit
The Fonds de Soutien des Rentes was established in July 1937 when
the. financial crisis brought the market quotation of government bonds
.totheir lowest level since 1927. a,ince it was considered necessary .
to support the government bond,market for as: well for fi
nancial reasons, and since t:b.e resourCElS of the,Caisse d'Amortissement
were insufficient for the purpose, the new Fonds was established and
its managemehtentrusted to the Caisse d'Amortissement. It was en
dowed with about 7 billion francs originating .from .the revaluation of
the g'o1.d reserves held by the Bank of France. By buying large quan
tities,'of bonds, the Fonds succeeded 'in raising prices 'on the govern
ment bond market ,but in so doing exhausteditsres'ources However,
in the Spring of 1938, when the tide of capital flow tU:rned in favor
of France, the Fonds was able to resell a large part of the bonds' pre
viously purchased arnd to ,reconstitute most of its liquid funds (de
posit3 at the Bank of France). In May 1938., the Fund was authorized
to us'e its liqUid funds to buy gold and. its operations were coordina
"ted with those of the Exchange Stabilization lfund.
The Caisse Nationaledes Marches de 1 'Etat, 'des collectivites,
et etablissements publi.cwas6stablished in 1938 to facili taterela
tions between the Government and public contractors. The growth' of,
expenditures by the government and of other public bodies, on public
works, armaments, etc., created a serious problem of the mobilization
of claims held by public "contractors. Manufactureres, builders, or
other business ID:en'having contracts with pUblic bodlesencountered
special difficulties in their dealings because public bodies would not
accept bills drawn on them and the transfer of a claim on such insti
tutions was a complicated., .hal ting process.
Caisse was an autonomous institution under TreasurY super
vision; its board of directors consisted chiefly of high
officials. It had two modes of operation. Firstly,:i,.t,granted 1.oans
directly to public contractors, for which purpose thefollC>wingre ...
sources were put at its disposal: (a) a direct government grant of 150
million francs; (b) permissionto sell a -maximum of 200 million francs
worth of State-guaranteed bonds, (by the end of 1938, 52 million ,:t'rancs
had been sold); (c) interest free, advances from
ury; (d) a special."fund for the guarante'e of public contracts"es':'
tablished. in June 1938, which derived 50 million francs annual revenue
from the "taXes on production" levied at the same time.
Secondly, it guaranteed loans granted by the banks to pUblic con
tractors and bills drawn on itself by public con"tractors. By
the end of 1938, about 1200 and accept
anoes had been authorized by the Caisse of whioh approximately 600 mil
ion had actually been used.
The -Caisse Nationa.le de Credit aux De,Partements,et auxCommunes
was more an 'institution for apportioning Government fuIidsamong local
pI1blic bodies than strictly'a banking organization. The Caiss.e; was
established in 1931 and reorganized in 1939. It was an autonomous in
stitutionmanaged by a' board composed of the Governor of the Bank of
Franoe, high government officials, and representatives of Chambers of
Commeroe and of local public bodies. It was autp.orized to grant sub
sidies to local authorities when issued loanato finance public
works, or to make direct loans for this purpose. The Caisse had at
its disposal resources derived from its initial endowment {300 million
francs land, from its ass igned portion of the revenues from certain
taxes. (partioula:rly gambling taxes). Moreover, the Caisse served as
in the a.pportionment of loans and subsidies by the State
to loeal publio bodies for use on public works. In addition, it often
aoted as intermediary between the local authorities and the Caisse des
- 140
or the Credit Foncier.
The Office des Cheques Postaux was primarily an organization for
faoilitating payments and transfers of funds, but it also mobilized
for use by the Treasury part of the liquid funds of the country.
This Office was established in 1919 as a section. of the P.T.T.
(State administration of the posts, telephones, and telegraphs) to
supply checking and transfer facilities for the whole country. Like
the Postal Savings System, it operated through all post offiqes, but
otherwise there was no connection between the two. Checking accounts
with the Office could. be opened by any person; payments from such ac
counts could be effected by check or -- more frequently -- by
feraca:rried out in accordance with written instructions to the Of
fice. Avast number of small private transactions were cleared tr,rough
postal
No' interest was paid on deposits, so 'that they usually contained.
only funds held against payments due within a short time. According:
lyban..kers dianot complain of the competition of 'the postal check
sYE;1tem,: as they did of the activities of the postal savings.. Moreover
the qffiqe assisted the banks by facilitating their tranaactionswith
customers in remote sections.
,Attb,eendof 1938 there were 804,713 postal checking accounts.
Theamountofdeposlts was 6,179 million francs, of which 2,087 mil
lion belonged to public bodies, and 4,092 million to individuals and
companies. Aside from some small cash reserves, the entire amount of'
the deposits received by the Office were turned over to the Treasury
without interest; this amount was entered as one of the items in the
Treasur,r ,a floating debt. e
n. Public Credit Institutions for SpecIal Economic Groups
. . "
For some time, and particularly during the inter-war'perlod, the
French Government had found it desirable to intervene in the/credit
market in favor qf particular economic groups ,such asfarmers,hmn.e
builders, small ... and trade, etc. , For this purpose, a number
of s.peclal public creditinstitutione were established; these institu
tions briefly reviewed in thiss6ction. In the aggregate, they
plaYed a very important part in French economic life
Mortgage credit .and final1cdngof hou.sing
Mortgage credit WaB. less widely developed in France than inmaIlY
other countries.!1 A large proportion of the farmers had owned their
!.I .The tem for mortgage credit is "credit hypothecaire", ap
plied to any loans backed by a mortgage. Strictly speaking,
"credit foncier" refers only to loanaagainst mortgages on land,
but in practice both terms are used; synonymously.
- 141
land for several generations; and the larger properties did not often
change hands. Hence loans for land settlement were rather exceptional.
Mortgageloa.ns for residential construotion were usually more frequent,
although given the stationary popula.tionand the 'conservatismpf the
French middleclass, the bUilding of new homes was much more limited in
Franoe than in most other countries of Western Europe; in the late
'thirties, it was virtually stagnant.
Mortgage loans' arose in several ways. There were granted
between private individuals,generally with 8. notary as intermediary,
and loans for building or purchasing homes which granted by in
surance companies and combined with an insurance policy on the life of
the borrower. But, there was also what might be called the organized
market for mortgage loans which included (a) the Credit Foncier de
,(b) institutions for financing the building trades, and (c)
state financing of housing. Long-term mortgage loans to farmers were
also granted by the cooperative banks (caisses agricoles)
see next section.
Credl t 'Foncier de France. The Credit Foncier was .. a corporation
established in 1852 in order to avail itself of the new legal
leges offered to supervised mortgage 'credit institutions under the
sta.tute of that year. Although mortgages were granted by
diVidualsandcompanies, the Credit Foncier was practically the only
large distributor of mortgage credit in Franoe. No.longerpossessiIlg
any exceptional franchise under law, its strongpoaitiondated backt6
the last when 1t had become firmly entrenched as a virtua.l t'e-'
gal monopoly. '
The mortgaging of property in France -- the ,hypotheqation of land
and of buildings (inscription hypothecaire), andthecancellati6nof ,
the hypothecation (purge hypothecaire' -- was usually avery complica
ted process heavily burdened with taxes. Still more intricate and
costly was the procedure for sei zing the property of a a.efaulted
debtor. The law of 1852 simplified the procedure for mortgage banks
whioh would accept the Government's supervision. In February 1852 the
Banque Fonciere de Paris was established and was for years
the exclusive privilege of using the special procedure provided by the
new statute in the 7 departements surrounding Paris. In December 1852
its wa.s estended to' include the whole of Fra.nce a.nd its name
was changed to "CredltFonc:ter de France" With the of the
28 period, the privilege was not renewed,but Credit Foncferhad
by then so firmly entrenched itself that no other corporation claimed
benefit of the 1852 law. The operations of the Credit Fonoier had
been gradually extended to the Frenoh oolonies 'a.nd'eventuallyto- the
whole Frenoh Empire.
The Credi tFoncier was managed by aboard of direotors chosen by
, the 200 larges t .shareholders. In actual praotice, however, the. manage
ment wa.s in the 'hands of the governor of the bank (who was alsopresi
dent of the board) and two deputy-governors, all appointed by the
-,142
Government. Furthermore, three of the directors had to be chosen by
the sha.reholders from high officials of the Treasury.ll Its other
members included representatives of the large deposit banks, members
of the nobility, and 'former public officials. All activities of the
Credit Foncier we-re supertrised by the Government.
The 'resources 0 f the Credit Foncier were derived from i ts capi
tal and reserves, deposits, bond issues, and special.-purpose loans
granted on occasion by the State. By far the largestsQurce of funds
wa,sbondissues,whichwere limited to 50 times the amount of the
capital. There were three major types of bonds: (a) obligations fon
cieres (mortgage ponds) the proceeds from which were used only for
mortgage loans, (h) obligations communales (communal bonds) used for
loans to" local public bodies, and (c) obligations maritlmes (maritime
bonds - appearing 'in the, t twenties) used for loans to shipbuilding en
terpri.ses.Before the World War, the Credl t Foncier had been able to
borrow at 3 ... 3 1/2 per cent; in the middle, t twenties it had had to
pay as high as 7 pe'r oentbut in the 'thirties, the rate. fell again to
it it 1/2 per cent. The bonds were redeemable over 'a specified period
of yea.rs ,general1.Y from 50 - 70 years from their dateof issue.
Traditionally, the principal field of operations of the Credit
Foricierwasmortgageloans, primarily on residential property. In 'the
inter.;.war period, however, mortgage loans did not keep pace with the
ra:pid:growth of other types of credit. 'In the 'thirties ,with the de
crease in construction, the granting of "nomal" mortgage'loans came .
to a virtual standstill. Loaf:l.s to local government bodies much
more important and special loans at reduced interest were made for the
account of the State to ship-building enterprises. The distribution
of loans granted by the Credi t Foncier, in 1913 and 1938 is shpwn in
the follOWing table:
End of 1913 End of 1938
(in of francs)
Mortgage loans 2.8 6.8
Communal loans 2.4 13.2
Maritime loans 0.3
.in 1936, in. application of the Government's policy'of lowering
interest rates and stimulating business, a special agreement was con
cluded With the Credit Foncier. The latter agreed to reduce its in-'
tersstrate on all outstanding loans to 6.3 per cent on mortgage
loans, 6.7 per cent on maritime loans,. and 5 pex- cent on the communal
loans. Since the rate of interest on some of the bank's' outstanding
11 The organization of the Credit Fancier was evidently patterned
after that of the Bank of F:r-ance. In 1936, when the Bank of .
, France was "democratized," suggestions were also made for the re
form of the CreditFoncier,but they did not materialize.
bond issues exceeded' its new rate of, earnings, the Government granted
it a compensatory loan of 3 billion francs at an interest rate of only
2 per cent. Of this amount, was to be used for loans to
local public bodies and 500 million for mortgage loans.
The balance sheet of,the,Credit Foncier at the end 01 1938 is re:'
produced in the following table:
Balance Sheet of the Credit Foncier. as of December 31, 1938
(in millions of francs
Assets Liabilities
Cash and balances
75
Capital
375
Bills and advarJ.0es
1,453
Reserves 1,736
Government loans (unused portion) ,751 Bonds 15,732
Long-term loans
Premises
20,559
109
Government loans
Deposits
2,971
1,992
Dividend
139
Total 22,944 Total 22,944
While long-term loans exceeded 20 billion francs, the amount of
bonds issued was only 15.7 billion. Maritime loans exactly offset
maritime 'bonds at a., billion francs, but mortgage and pommuna1 loans
at 6.8 and 13.2 billion francs exceeded the issues of mortgage and
communal bonds of 5.4 and 10.0 billion francs, respectively. The'bal
ance was derived from the reserve account or from Government loaps.
The limited amount 'of short-term 'lending was financed. from deposits;
it was not permissible to use. proceeds of bond issues for such
operations
The capital of' 375 millions was represented by 750,000 registered
shares of 500 francs each. The dividends amounted to 100 francs for
the years 1935-37 and 185 francs in 19;8. The Bourse quotations which
had reached a maximum of 5,880 francs in 1930, ranged between 2,000 and
3,635 in 1938. In April 1940, tne capital was raised to 500 mil11bn
francs by capitalizing part of the reserves, the new shares being is
sued to existing holders; this procedure had certain fiscal advantages
'and increased the borrowing power of the Credit Fancier to 25 billion
francs (50 times its capital).
Mention should also be made of a speciael institution in Alsace
Lorraine, the 'CreditFohcier et Communald'Alsace et de Lorraine.
Established in 1923 to take over an older organization, it was control
led by local with the assistance of a public oommissioner.
At the end of 1938, it had outstanding mortgage loans of 216 million
francs and communal loans' of 47 million, financed largely'oy bond
issues; its capital and reserves totalled 34 million francs.
of building trade. While the Credit Foncier,granted
- 144
mortgage loans to home owners, the financing of building contracts waa .
handled by other organizatIons, the largest of which was a corporation
affiliated with the Credit Foncier, the Sous-Compto-ir des Entrepre
neurs. While the directors were chosen by the shareholders, the
president and g.eneral manager was appointed by the Minister of Finance.
The Soua-Comptoir granted loans to contractors primarily on three
month promissory notes,. which were renewable. The notes were redis
countable with the Credit Foncier, and when the construction was com
pleted they were sometimes consolidated into a mortgage loan from the.
Credit Foncier. At the end of 1938, the total amount ofloans out
standing was 375 million f:rancB. The and reserves eClualled 72
million; the remaining funds were largely supplied by the Credit Fon
cier through redis.counting notes.
There were other organizations without any official status which
engaged .in the financing of the building trade. For example, the
Caisse Generale de l'Industrieet du Batiment established in 1872, had
granted about 60 million francs in building loans at the end of 1938.
The Caisse Generale was almost the only non-public banking institution
in this field, b,owev'er; the other private institutions financing the
building trade did so only as a side-line to their principal functions
of in real estate, promoting land and housing developments,
Frequently, in selling a property, they.did not
extend their own credit facilities but merelY-acted as the buyer's
agent in obtaining a loan from the Credit Foncier or from an insurance
company. Pertinentfigur,esrelative to the 1938 operations of a few
, of these companies are shown below:
Assets Liabilities
(in milliona. of francs)
Bills Capital
Other,
Real and Other and Long-term 11a
property loans assets reserves bilities
La Rente Fonciere
Fonoiere
Cie Foneiere de France
L'Industrielle Fonciere
Societe des Immeubles
de France
16 65 51 10
85
86 8
72 3 9
37
242.1 15
58
36 36
11 :;4
50
12 48 46 56
8
Including 19 million mortgage loans.
Including 9 million mortgage loana.
Guaranteed by mortgages.
Including 20 million losses.
These companies, corresponding to the American "real estate com
panies", were called in France "Societas immobilieres", or So
cietes foncie:res".
-
state financing of housing. To complete the picture of housing
finance, mention, must be made of the special bodies fostered by the
Government to develop low-rental urban housing. Such enterprises had
been favored by special legislation even before theWor.ld War, re
ceiving fiscal privileges and special borrowing savings
banks and similar institutions. ,Inthe thirties further legislation
was to foster, these activities, aimed not only. at imprOVing
wotokers'., housing but also 'at providing employment. The State,
the Caiss'e-,des Depots et Consignations, provided the bulk of the neces
sary financing.
The principal instruments in this program were a group ofmunici
pal and departmental institutions, the Offices Publics d'Habitation a
bon Marche. 'Except for a small working fund,these bodies had no
capital and relied principally upon loans at an interest rate of only
2 per cent fromtbe Caisse des. Depots. The State compensated the
Caisse for the difference between the 2 per cent a:nd its customary
rate of' earnings. The Offices Publ1.c buiLt low-cost houses for. sale'
or rent; some offices also granted loans for the construction or pur
chase, of dwellings.
Several private corporations and cooperative societies also en
gaged in low-cost housing ventp.res. In order to avail themselves of
the special credit and tax privileges, they had tc accept State super...
vision. They were also financed principally by the Caisse des Depots.
At the end of 1937 the loans granted to the, Offices Publics and to .
other organizations, largely by the Caisse des Depots., amounted toll.2
billion francs. .
Agricultural credit .institutions
In'France, with its stationary relatively conser
agricultural methods, cooperative agricultural credit societies
(caiesee agricoles) did not grow up until almost half a century rater
than in neighb'oring countries. The end of the laet century marked the
appearance of these cooperatives, whioh granted loans tofarniers with
out the security of the traditional real estate mortgage. Their growth
. was fostered by the State, which enabled them to institute pel;.atively
low interest rates. Such financial assistance wafiJ felt to'benecessary
because of the importance of agriculture in the French social and
nOn11c structure. 'The movement was muoh more active in the East and
West'than in the North and South; in the latter regions, whereagri.2
culture was intensive and commercialized (sugar beets in 'the North,
wines in the South), the provincial and deposit banks adequately serVed
credit needs. '
The main structure of, the agricultural cooperative credit system
in France took the form of a The,broad base was formed by
5,798 "caisse locales", cooperative societies operating within the lim
its of a canton.; next came the 98 "caisses regionales", cooperative
. bodies d1stributedone to each departement, whose members were the
- 146
"caisses.locales"; finally at.the apex was the Caisse Nationale de
Credit Agrioole, a state institution with broad powers of control over
the whole organization. About 589,000 persons participated in this
organizati9u as 'members of the local caisses.
Local oaisses were not required to become affiliated with this
system, however, and some 3,000 with over 300,000-membersdid'not
ohoose to do so. Of these about ,2,000 organized on the principle of
unlimited liability of their m.embers (often called "caisses Durand"
from the name of their Frenoh originator - cf, the Raiffeisen offices
in Germany), formed an independent group headed by a centralcoopera
tive institution, the, Union Centrale de Nantes. The following discus
f;tion conce-rns primarily, however, with the operatioI'..8 ,of the
caisses affiliated with the Caisse Nati6nate.
The small capital of each iocal' caisse was formel! by the "parts ,.
(shares) subscribed by the members whose liability was limited'to the
exten.t of their subscriptions. Deposits were accepted from any person,
but loans could be made only to members. Any excess of deposits over
working needs was redeposited with the regional caisse of the
ment concerned. When the demand for loans wae greater than the avail.-=
'ablef'unds, the looal oaisse could borrow from its regional oaisse.
The regional caisses, aside from their funotional of mobilizing the
liqUid of the local caisses aoted as intermediaries in passing,
on to the local caisses'special loans and subsidies granted by state
through the. Caisse Nationale . The reg;l.onal oaissss also accepted de
posits from the Public and made direct long-term loans to individual
members of the affiliated local caisses. Aside from these banking
funotions, they were charged with supervisory. powers their af- ,
filiated local ca.isses (audi-c of accounts etc.)
The local cai8ses"granted mainly short-tem. loans (not exceeding
12 months) for moving crops, purchasing 8eed, fertilizers,
ment, . etc. The interest rate on these loa.ns was' in general about the
same as that charged by ordinary banks The regional' caissesal-so'ex

direot or indireot state aid to the regional oaisses. The medium:"'term
loans (up to 10 years') were grantedfbr the puroha.se of Iivest,ook and
maohinery,.or sometimes . for the construction of farm build
ings. Such loans were secured by mortgages, guarantees ,giv:'enby third
parties, or some other form of collateral. Long-term loans (up to 25
years) were made to individuals in,amounts up to 60,000 francs for
farm settlement, land improvement, construotion of buildings, etc.
SUoh loans were also extended to local oaisses in order to finance
oollective projects for land improvement and the like. These long
term loans were usually made
The whole agricultural cooperative credit, system was largely.
11 War veterans reoeived a special rate of 1 per cent.
- 147
dependent upon funds 8uppl1..ed by the state. through the Caisse Nation
ale de Credit Agricole. This institution was a government agency
founded in 1899 with autonomous status; its management was in the
hands of public It had originally been endowed with a per
manent non-interest-bearing loan' of 4oniillion francs granted by the
Bank of France. This endowment was supplemented each yearby the
transfer to the Caisse Nationale of five-sixths of the "redevances"
(royalties) paid to the State by the Bank of France. At the end of
1937, the total amount of the endowment was 1.7 billion
In addition, loans were granted to the Caisse by the
Cl3.isse des, Depots et ConsignatIons for the account of the state. By
the end of 1937 such loans had been made in the amount of 1.5 billion
francs at billion at long-term; in addition there
were some special loans for rural electrifioation, etc. The Caisse
des Depots charged only 3 per cent for the medium-term..lo{3.ns
cent for the long-term loans; it received from the state tpedifference
between' these rates and the "noinal" yield on its investments.
No balance sheet was published by the Caisse Nationale, however,
the items on the combined balance sheets of-the regional
oaisses at the end of 1937 arereproduced'in the following table:
Assets Liabilities
Redisoounted bills of local caisses 1,974 Capital paid in 219
Medium-term loans 642 . Reserves 291
Long-term loans: to :Lndividuals 703 Deposits 1,297
" II " to veterans (reduced rate) 26B Loans granted by
II " to cooperatives-
395 the State 2,231
It
The combined capital and reserves of the local caisses affiliated
with the regional' caisses amounted to 210 million francs at the-end 'of
19,7. Their outstanding loans amounted to nearly 1 billion francs.
Loans' for industry and trade
Public credit lnsti tutions granting loans to special sections of
industry and trade are discussed in thisseotion. Except for the
Credit Nationale, whose activities were more diverse, they wereprimari
with providlng credit to small-and medium-sized enter
prises .l/' . .
By far the most important lnstitution in this category wag the
Credit National, established in 1919 to finance the reconstruction of
war-ravaged areas. It commenced by loans to the "Sinistres",
i.e. enterprises which had had their physical plant and stock destroyed
Later "on, it extended credit also to manu-.
YSee a,lsop.114 for discussion of the Banque Nationale Fra.nca,ise
pour Ie commerce exter1eur, a. semi-public institution for financ
_ ing.foreign trade.
faoturers and merchants inunda.rria.gedareas,.whose business had, been ad
veraely affected by the war; and eventually it opened its medium-and
long-term.?redit facilities' to in general.
The Credit National was organized in oorporate form with a capi
tal of lOOmillion francs by theprinc1pal banks; insurance
companies, and domestic industrial concerns. The capital was repre
sented by 200,000 shares of 500 franc8,;125 francs had been paid in at
the outset, and the balance had been ,paid up_out of special profit
bonuses. The shares 'Were registered and could be transferred only
with the consent of the board of directors and at a price fixed by the
board (750 francs in 1937-38). The net profits were divided as fol
Iowa: first ,5 per cent to the legal reserve; then a 6 per cent divi
dendto the shareholders; than an amount, fixed annually, to reserve
or to-profits carried forward; the remainder was divided between the
shareholders and the Government, according to a formula taking into
con.s.ideration the exte'ntto which the bonds issued by the Credit Na
tional were'guara.nteed by the Government.. The total dividend amounted
to. 35 francs per share in each or' the yeal'9S 1936 -38.
tre
National was under the general direction of a board
of-directors named largely by the shareholders, but the general mana
ger, who was also president of the board, and the two managers, who
were membe::rsof .. the, board, were appointed by the Government. Its
operations fell into two distinct categoriss: those for the account
of .the Government, and those for 1ts" own, account. The opera:tions on
behalf the State were concerned primarily with the reparation of
war damage., After the cessation of hostilities, the financial ,re
sponsibili tyforalldes'truction cause.d by the war in Franoe was as
sumed by the government. Thees timation of the claims of ea.ch "Sinis
U
, however, was a complioated and lengthy matter} so a system was
devised, whereby the Credl t National made loans 'to the "Slniatres"
against their claims on the Sta.te. It also acted as- agent for the _
Government in disbursing the eventual war damage compensation. Al to
gether the war damage the Sinietres" by the Credit Na
tional totalled about 65 billion francs, of which about 40 billion
was directly provided by the Treasury a.nd 25 billion was obtained by
issuingbonds guaranteed a.nd serviced by the State.
In the 'thirties, by which time the war-damage claimahad almost
been paid off, the Credit National was charged with various new func
tions in the' Government's, recovery program. In 1937-;8, for example,
it helped to finance the Government's public works program by
bonds guarantee-d and serviced by the State ,; these were. issued to an
amount of one billion francs in 1937 and 3 billion in 1938.
The operations of the Credit National forite own account con
sisted of loans to industrial enterprises at medium.;;term.{3 to 10
years) financed by funds obtained through the 'issuance of bonds and
notes without government guarantee .It 'could' not accept depos 1ts ,or"
make short-term loans. A standard rate of interest was charged - 7.15
- 149 ..
per oent after 1932. At the end of 1938 loans outstanding amounted to
1.6 billion francs,distributed overall branches of economic activity.
The major borrowers were such im.portant industries as: metallurgyand
maChinery concerns (28.5 per cent of the loans outstanding at the end
of 1937), construction and connected industries (20 per cent), and
textiles (12 'per cent). No loan could exceed 15 million francs and
many were for less than one million;complai:p.ts were sometimes heard,
however, that the Credit National unduly favored "big business".
People's. banks. These banks, the "banques populaires" or "banques
du oredi tpopulaire", were special organi'zations established boprovide
credrt to small business, either by making direct loans or by giving
guarantees on loans negotiated with other institutions. Of the 75
people's ban..ks established before .thefirst World War, only! 15 survived
in 19l4,but a special law to stimula.te their growth waspromulga.ted
in 1917. The new law provided for interest-free loans to people's
banks from the Government and gave them various other legal privileges
(exemption from certain taxes, simplification of' incorporation' .pro
cedure, etc.). On the other hand, governmental supervision of their
activities was also introduced. Subsequent legislation extended the
degree of supervision, and at the same time1ncreased the volume of
government "loans', which became virtual subsidies.
The people's banks had a special lega.l character more s 1milar to .
that of cooperative societies than to thatofordinari"soc1etes
anonymes" Their oapital was subscribed by the members,' and the divi
dends 'Were limited to 6 per cent on the amount paid in. The surplus
profit had to: be eitherallocated to reserves or rerun.ded to the bor/-..
rowers in proportion to their payments of interest and commissions.!
Deposita. could be.l::I.ccepted fromaI\Y persoll but loans could be
made only to members (manUfacturers, t:tta.ders, or craftsmen) the
normal practice of their businesso The-bulk of the resources of the
people's bankawas actually derived from deposits; their liabilities
enjoyed no government guarantee,but with the high degree of state
aupe:rvision,the Government felt amoral obligatioI;l to help any
\ people-fa bank in difficulties. The GOvernment also subsidized the
banks a'part of the "rede.vances" (royalties) re- .
caived from of France; and bY' making them special loans from.
to' time.out ,of' the general.fund. of the Treasury.
After 1917,' the people's banks. expanded rapidly. By/' 1932, there!
were deposits of.l,210 mil1ion,franos,capitaland reserves; of
230 million,and government loans of 135 million. In 1929,. a central
organ.ization,.for peoplefE;l banks had beenestf\b1iahed, theChambre Syn:
dieale, administered by aboard of dlreotors.elected by the banks and
supervised by' a government- commissioner. TheChambreSyndicale WB.S
charged with the and' technical" control of
'al1 people fS banka.. It a subsidiary financial agency
11 Of. refunds 'in the: oonsumer cooperatives of the -Rochdale type.
- 150
the Caisse Centrale des.Banques Populaires;the special function of
this body, managed by the board of directors of the Chambre
Syndioale, was to add its signature to bills held by the people's
banks, so tha.t they mightbeeliglble for rediscount with the Bank of
France.
In the crisis years of 1931.;.32, most of the p-eople I s banks beca.me
involved .in serious dIfficulties. Although, in principle they were
suppOSed to lend only at short-term, the praotice of successively re
newing such loans made some of them in effect long-term credits. It
also became apParent that there had been extensive mismanagement on the
part of the managers and directors of the banks. It proved necessary,
therefore, 'to undertake a thorough-going reorganization, in the course
of which a of the banks were olosed or merged with other insit
tut1ons,and the majority of the IDana,gers and directors of the remain
ing ,banks were dismiss'ed.
The 'outstanding state loans to the banks were assumed by the Cham
bra Syndicalej the ba.nks, baingreliaved of this burden, were able to
write off an eqUivalent amount of bad debts. In addition, new ad
vanceafrom the Government were necessary to assist many of the banks.
These were made initIally to the Chambre Syndica1e, which, in turn,
-distributed the funds to banks in special difficulties.
,As a result of t.hese developments, the control of the Government
and of the Chambre Syndicaleover the people'!=! banks were strongly re
inforoed" The banks were required to submit to periodic examinations
auditors, and the approval of the ChambreSyndicale was
:r-equired for the appointment of their directors and managers. Meetings
of the boards of directors of the banks had to be attended by the man
agers of the regional branches of the Bank of France, or their repre
sentatives.
In 1936,' the people's banks were called upon to discha.rge a spec
ial function in connection with the Government's program for giving
-temporary assistance to enterprises burdened by the new social
legislation of the IfFront Populalre". A law of August 19, 1936, pro
vided for loans .tosuch enterprises,up to a total amount 'of 3.5 bil
lion francs" These loans were to be made by the people's banks agains t
90-da;y p:r-omissory notes ('twice renewa.ble) in oases approved by special
commissions set 'up ineachdepartement. The people's banks
rediscounted these notes with the'Ba.nk:ofFra.nce under'the guarantee
of.theGovernment, after they had been endorsed by the Caisse Centrale
des Banquea Populairea. of interest of these, loans was equal
to the discount ;re.teof the Bank of Franoe plus a 0.2 per /cent
to cover ,the administrative expenses of people 'sbanks. Altogethe:r;
loans ofthls type were made, totaling 1,057 mllion
fra.noa. By the" end. of 1938, only a ama.ll amount atill remained out
standing.
At the end ;of 1938, onlY--76 banks remained in 'existence, with .620
- 1'51,
branches and 49,060 members. The -following table shows selected items,
in 'their combined balance sheets at ,the' end. of 1938. 1:../
(in millions of francs)
Assets Liabilities
Disoounts 898 Capital and reserves
'464
Loans 358
Del;IWld deposits 1,150
Time deposits 191
These figures do not show the debts of the people's banks to the Cham
bra Syndioale, which were probably grouped with one of the deposit
items
The people's banks never adequately filled the role which was
,conoeived for them, i.e. providing credit'faoilities for small busi
ness enterprises whioh were unable to obtain satisfactory
tionfrom the ordinary banks. Indeed, the ordinary banks sometimes
oomp:la.:1nedabout the unfair competition of the people's banks. The
people's banks encountered the familiardiffioultiesof extending
oredit onacommercial basis to small business, and it was their losses
on suc$ 'loans which made oontinuing government subsidies necessary 0
the end of 1938, about 450 million francs had been put into peo
plEr's 'bankaby the Government (partly by t:p.e Caisse des Depotse't Con
slgnati6n8for the aocount of the, Treasury). Of course, the whole
government program in this field was inspired by considerations of
socia.l policy than of banking m.anagem.ent.
Caisse Centrale du Credit Hotelier,Industriel et Commercial.
Whereas the people"a banks had as objective the provision 'of
short-termcredits to small business ,there was also, organi
'zation for medium-term loans to small manufacturers and traders,' the,
Centrale du Credit Hotelier, Industriel et Commercial. This
institution wasorgani,zed in corporate form wi th a capital of 5 mil
lion francs. It was created under the 1917 law relating to people's
ba.nka.,;andthe dividend of the Caisse, like that of the pe'ople"sbanke,
was limited to 6 per cent; any-surplus wererefundedto'the
persons ,usingthe credit facilities of the . institution. ,The president
and direotOI'S were eIected by the shareholders, 'out had to be a,ppro1Ted
by the 'Minis try of Finance. There was also a government commiss ioner
totheCaiase, who had general supervision over all of ita
aotiyities.
The Caiss'e had originally be founded in 1-923 under the name
"Credit National' Hotelier", ,with 'the specifio objective of providing
loans to hotel owners for mod-ernizlngan,d enlarging their
. .'The 1ntereetof the Governmentlri'this dar1ved from the bene
!I
No balance aheets'werepublis'lied for most of the individual banks
,or for the Caisse ' ,
-152
the tourist traffic. By. 1931, the Calsae
had extended loans of frt:m,cs, with funds supp1ieda1xnost
exclusively by the. Government.
Int931-38,/the ineti-w:t10n .was reorganized and assumed its pres
ent name. The scope of its activities was greatly enlarged, and it
became an inetitution. for granting medium-term .loans to small business
in general. Ita loans could not be granted for more than 10 years,
and individual loans could not exceed 150,000 francs. Thereafter, 60
per oent of the advances which it received from the .state had to be
devoted to loans to small manufacturers and traders. It was assured
new advances amounting to 100 million franca, of which 35 million was
to be provided by the Treasury-and 65 million by the Caisse des Depots .
et Consignations. At the end of 1938, were outstanding only 141
loana, aggregating 15 million there were on file, however, 300
applioations for loanetotaling 30 million francs ..
Credit for Cooperatives
Loans to cooperative societies in France (other than agrlcul tural
cooperatives) were provid.ed by a. special public credit institution,
thaCa,isse Centrale de Coopera:tif. The non-agricultural co
operative movement in France (producers' and consumers' cooperatives)
had a 10Dg while been favored by special legislation. Since 1915,
loans had been made to such organizations by the Ministry of Labor. .
By a decree of June 17, 1938, the Caisse Centra.le de Credit Coopera.tif
was established to supervise the aocO\lD.ting procedures and administra..,
tive organizatlonof the non-agriculturaL cooperatives and to
them loans with funds provided by the state.. The Caisse was adminis
by aboard of 4-irectors composed of representatives .of.theco
operatives' and acting under government No figures are
available concerning the extent of the operations engaged in by
this institution, but t1l.ey a.re not. believed to ha.ve been large.
:pa.jlIl_... Sp.oPfJI (monts de piete)
The pawnbroking business in Franoe was regulatedby law and could
perforxned onlYb,. special1ootitutionsof.& public character, the
monte de piete
at
.11 '.l'heaewere munio1pal institutions, .wi th honorary
boards of directors by the Mlniat,rof the Interior in Paris
and by the "prefets" in the provinces. Ona-third of each boardwas
ehosan from the mnicipal councillors ,ione-third from directors of
inititutions" and from other citizens of the lo
cal community. The board was presided by the mayor of the muni
cipality. The de plete were oonaideredas charit8.bleinat1tu
t1ons,and were supervised by the offioialeof thecbarity
. (Department of Justice )., although their a.ooounts were audited by th..e
IDSpecteurs des finances" (Treasury).
In some oities thename of '-mont de piete" has been sllpers.eded .by .
"Ca1ssedeCredit mu.niclpal" ..
153
The funds Il.tthe d1f:3POSal of the depiete
tl
,< were provided
,giftsjbequests ,etc. ,'andsometimesbysubsldles,:from
the mu.nicipll,lities . They 'could also borrow by issuing short-term
deposits . In some,
one ln41vid
ual ;,some provided fora minimum, mostly a few francs. The ratee of
interest were fixed by the board; they varied froml-to 14 per cent
aocording to circumstances. The most frequent pledges were personal
articles(jewels,clothes,etc.ljhowever, some "monts" also made
loans on certain categories ofsElcurit1esandeven on cars. The pro
fits of the "monta" were allocated either to their capital funds .or
to oharitable institutions.
In 1933, according to the lates t available figures for the whole.
of France, 288 million francs were lent and loans amountirig to 225
million ware renewed. were made in the amount of 260 mil
lion francs. .
TIl.. hivate Insurance Companies1,!
Private inslirance companies in France usually took the form of
sha.recompanies(soc1ete anonyme) or share partnerships (societe en
oommandi te par actions ) , with a smaller number of :mutualcompanles
(societe en nom collectif or societe a forme 'mu.tuelle) The insurance
written fell more or less into the familiar categorIes of life, fire,
and casualty,and usually asingle oompany confined itself to one
branehexolusively However, aeveralcompanies which started in one
branch of insurance expanded into other types by the formation of, a
separate siater company with separate capital, but under the samedi
reotorate and often at theaame aq.drsss as the original company. Life
companies provided, besides straight life policies, termlnsurance-,'
endowment polioies, and annuitieso Popu.lar'life policies at low pre
mium rates without medica.l examination were offered by several com
panies for the benefit of low-income earners. Fire and damage insur
ance, oontracts were interpreted differently in }'1rance AmarI.
loan practice, i:n that the lessee of apart or whole ofa.bu.l1di.ng was
not proteoted by a policy out by the owner, but had himself to
ineu.re that part of a property-which he occUpied. Polioies' written by'
oompanies other than life and fire 1nsurancewere issued to cover a
variety of risks: accidents of all kinds; theft, burglary, hail,
plat$-glass,flood, absolescence, workmen fa oompensatron,
fidel1ty,automobile, and credit. There' were a few which
speciB.lized in so-called "marriage" and "birth" insurance, in which
matQring policies were used to provide dowries or pay hospital bills.
, iDsvrel0.Ilm-ent' of 'legslat1on
In 1867 a law provided ,that lifeeompaniea were to be.subjeot to
Prepared by Foreign Research Divisiono{ the Federal Reserve Bank'
01 New York. . ,
- 154
thesu,pervision and authoriza.tion' of the gOV61"nment, but it remained
moreor/less ,of ,a"dead Life ,insuranoe and oapitalizationoom;..
pandes! were really brough,under government regulation by the Law of
1905, whioh restated the provisions of the. Law of 1.867 ,reqUirIng that
all suoh oomPanies, inoluding foreignoompanies operating in France,
mu.at obtainauthorizattonfrom the Minister of Labor, after the sub
mission of statutes, financial statements, etc., before accepting any
bu.siness in Fra.nce; the companies also were to furnish finan
oial statements at intervals of six months following commencement of
operations in France. By the same law, reserVes corresponding to the
total obligations of the comPanies were'required to be constituted in
approved securities, minimum tariffs were tmpoeed, and regular audits
by qualified auditors were instituted. The restrictive effects of the
Law of 1905' caused the withdrawal of a number of fo:rei:gn life companies
whioh had been giving domestic firms severe oompetition.
The Workmen's Compensation Law of 1898 recognized the need for
control of' companies writing employees' aocident insurance, aBd re
quired them also to obtain approval from the Minister of Labor. An
initia.l deposit of 400,000 franos with the Caisse des Depots et Con
signations 'wa.s required and funds representing the total ca.pi tal value,
of all armui ties granted (in France fatal or permanently disabling ac
cidents must bese'ttled by armuities) were to.be invested in authorized
securities under the supervision of the Insurance Control Department
(Direction des Assurances Privees) of the Ministry of Labor. Domestic
companies were allowed to retain custody. of these securIties, but
foreign companies operating in France had to deposit them with the
Ca ...asedes Depots. Insurance other than life, capitalization, and
workmen's compensation remained until reoent years Virtually fraeof
legislative restraints other than those imposed by ordinary business
law..
The law of March 8,1922 provided a minimum of control over all
ahare and mu. tual insurance companies by compelling those ip..8urers not
oovered by the Life Insurance Law of 1905 and the Workmen' 8" Compensa
tio:p. Law of 1898 to submit to the Minister ofIAbor notice of their
existence, two copies of their sta.tutes, the Illi1mes of their officers,
profit and loss statements and, balanceeheets. Issued with the pri
mar,y purpose of OQtlining the proper organization of mutual insurance
oompanies, then on the increase, the law set forth regulations as .to
their statutes, the rights and obligations of participants, the form
, of their directorates and management , and, other details. , No audits"
and Ilodeposits with the Caisse .,des Depots were required, but the set
ting 1J.p of loss 1. premium; and legal reserves 'was made obligatory. Mu.
, tu"Al 1naurerswere required to set up a reserve againSt, unea.rned pre
miums at the end of each business year ,equal to 33 per c,ent of net
premium. income The legal reserVaB oishare comPanies were to be
Companies formed to invest the saviDgaof policyholders, returning
a.t a guaranteed,maturltyvaJ.'I18 bnaset maturity date.
- 155
formed by a deduction or 20 percent of new profit each year until
they equalled, one-fif"thof the pa:id-;in capital. Share companies were
to have a minimum capital of one million francs (or two million francs
in the case of a li-fe company). Article 57 of the decree listed the
classes of approved seCllrities in which at least three-fourths of the
fUnds of both mutual and share campanieswere to be invested as fol

Real es tate or' mortgages in France or Algeria
state or State-guaranteed bonds
Loans to or debentures of' departements, commu.nes, and, chambers
ofconunerce in France or Algeria, or securities guaranteed by
them.
Mortgage and cOlDDIl1IlB.l bonds of Credit Foncier
Loans and advances. on above-mentioned public seCllrities
Bonds of French railway companies
Mortgage credits for constru.ction of 'premises
Banda issued municipal pawn offices of France.
French companies were/permitted to hold proportionate assets in
foreign countries in which they ba.siness and could invest any de
posita required by those cOl1ntries in real estate, mortgages, or secu
rities .permitted the legislation of the coocntrles concerned.
Rules governing ,the content of Frenchinsmtance, contracts were
embodied in the law of 13,1930, whichreeulted from the oft
heard complaiIlt that French companies tended to impose termeand types
of policies upon the insurance-buying PJ.blic, binding a buyer for ten
to twenty yearato the pay!llent ofprem.1ums on a policy with which he
had become dissatisfied. The.law of 1930 and the competition of
foreign insurers forced the French companies to liberalize their policy
terms and provide more options and choices for the policy holder.
.
'The serious competitl.ve situation
,
which arose in automobile in
surance led to legislation in 1935 affecting all insurance/connected
with pnblic transport, and partiCillarQ" to the decree-law,bf August 8,
1935, 'instituting oontrol of all motor oar insurance, followed by sev
eral decrees in the next year further describing the oblfgat1om;J of
the insurers. CampaD.ies desiring .to contiDlle such insurance
were required to a stlpu.lated deposit. wi,th the CaiBse des Depots ,
and to invest in. approved seCllrities (mostqF.rench Government or
Govermnent-gu.a:mnteedbonds) funds 'correspondlngto the total of un
earned premiums and ou.tatanding French claims asainst the companies.
The law of 1935establishE'd audits of1"1cials and required
app1.1cation to the Minister 01' labor f'or registration and permission
to operate 'inFranoo,!, Foreign and d<D8stic' oompa.nieain France, were
equally affected by the' 'law.
The numerous separate insurance lavs dating from 1867 were. final
ly coordinated' and brough together in'the law of June 14,1938, issued
with the eX!Jressed intention of'-unif'ying-theState eupervisionof
- 156
:insurance companies" and "facilitating the organization of insura.nce
,in,France and Algeria." This law. formed a broa.d foundation for
sequent decrees which were to follow in profusion during the war years.
Some of its new provisions did not take, effect for aome time after
their promulgation, in order to allow the companies time to adjust to
them. All domestic and doraign insurance companies in France and Al
geria, except underwriters of-reinsurance and marine inaurance (the
latter to be sUbject only tq the Commeroial Code), were deemed sub
ject to State supervision.!.1 Insurange of any kind whatsoever was to
be written only by share companies, ahare partnerships, or mutual com-,
panies, e:;x:cept that guarantee syndicates could be formed by employers
to insure agains t employees 1 accidents. All companies covered by the
law were to submit to examinations by appointed a.nd qualified auiii
tom and were required to apply for authorization to operate from the
, Minister of Labor. Detailed provisions rala'ting 'to liquidation and
bankruptcy procedure became effectivetmmediately, bankruptcy to be
declared only on the r,equest of the Minister of Labor, after an ap
pointed official with full responsibility for the settlement of all
liabilities and claims and carried out liquidation proceedings.
cle 5 of the law described bri-ef1y the Superior Council of Private
Insurance (Consei1Su,.perieur des Assurances Privees) which was to be
set up in the Ministry of Labor to 'take over from the Direction des
As surances Privees the supervision of French insurance; further de
crees were to follow to bestow authority and competence upon its var
ious departments. One other main provision was the requirement that
all agreements between insurers relating to tariffa, ,general policy
clauses, and professional organization had to be submitted to the Min
Labor. Within certain limitations,the' Minister could even
impoeeupon all companies subject to his control temporary agreements
on tariffs or policy clauses, which conformed to the general existing
practioe.
A decree-law of ])ecember 30, 1938, -s'et forth at great length
general regulations for the' various and empowered the Superior
Council of Private to issue detailed orders and rulings fur
ther des cribing the obligationsand duties of the companies! As in 0
the case of the law of June 14, many of the provisions of this law
were not to take effect immediately. The Superior Council was ,au
thorized to fix for each cateso.ry of insurance the minimum amount of
capital which share companies 9rahare partnerships were to have ,With
the stipu1ationthatnonunimum was' to be' less' than 5,000,000 francs.
The supplementary 'reserves to be the companies as guar
against an insufficiency of the. ma:tb.ematical reserves were like
wise to be fixed by the Superior alsq replaced parts
of the Decree of March ,8, 1922 concerniDg the up and amiIliso:
tration of and thecontente of tp,e,ir statutes. For
each oategory of lnauran.ce, the Superior Council was tosetby decree
11 Reinsurance oompanies were inteJltionaliYleft relatively free-of
statecont1:"ol, i:n:the hope ofencouragiJlg the of a
strong domestic reinsurance market in Franoe
- 157
the minimum initial endowment (fonds'dtetablissements) of mutual com
panies, which might be ,raised partly.in the of bonds. The
ior Council was instructed to fix the percentage of to which
a mutual insurer's guarantee reserves, plus fonds dtetablissement,
must be equal. Mutual life insurers were to be required to maintain
additional guarantee reserves against an insufficiency of mathematical
reserves, to be formed by deductions from premium .income .
Pursuant to this law, a decree was iesuedon June 23, 1939, fix
ing the minilIIUm (".8. pital for share companies and the minimum fonds d t
etablissement for mutual companies. In the branches of life, "ma:r
riage", and "birth" insurance, share companies 'Were to have an author
ized capital of at least 20 million francs, and mutual insurers were
to have fonded 'etablia,sement of at least 5 million. In the fields of
workmen's compensation, "third party", marine, and reinsurance, mini
Inum, cap! tal and fonds ,d t etabl!ssement were set at 16 milliOl.L and 4
million francs respectively; in all other brancnes the legal'minima
were to be 8 million 2 million francs for share companies and mu
tIlala, ,respectively" The companies we're given until January 1, 1941
to make the necessary changes in their constitutions and statutes. '
Section IV of the law of December 30, 1938, prescribed the in
format1onto be contained in all pplicies insurance contracts, and
gave details of the personnel and powers of the five departments of
the newly-formed Superior Council. By the terms of Arti,cle 149, in
surers could invest their te'chnical reserves without limit' in State or
State..;.guaranteed- obligationa, in shares of the Bank 'of, France, and in
Obligations of the Credit National and Credit Foncier.Not more than
50 p$r cent of the technic,al reserves of companies writing life or
workmen's compensation business, and not more than 25 per cent in the
case of insurers, was to be invested in real estate, inobliga
tiona of communes and departements,and in approved securities on the
official list of the Paris Bourse The seourities ,deeds',.aIl.4. other
dOCUlJ18nts representing the i-nvestment of the-t$chnicalreserves of
foreign companies on account of their business in France or Algeria
were required to be deposited either at the Caisse des Depots et Con
signations or at the Bank of France. The amount of the ,.initial
posit (cautionnement) at the Caisse which all foreign and domestic
oompanies were required. to make before being to operate in
Frmoe was to be fixed by a subsequentdeoision of the SUperior Coun
oil. '
:By the time of the outbreak'of the war, work was'still in pro
gress, on .the implementation of the 1938 laws; the SUperior 'Council it
self had not yet been established. On October 4, 1939, an Interiin
)04 was set up to carry out the functionaofthe SUperior Council,
the Commission Permanente duConseil Superieur des Assurances Privees.
This body consisted ofa group of government Officials and representa
tives of the various branches of insurance aotivity. On January 20,
1940, it was decreed that the provisions 'of the 1938 laws, which had
taken. effect by the o-peningof hostilities would only enter into
- 158
force on a date to be set by the Ministers of Labor and Finance. How
ever, a decree issued on April 15, 1940, provided that tne law of De
oember 30, lY38, should take effect
On Jamary 1, 1939, a decree of July 1, 1938 regarding workmen's
compensation insurance became effective, replacing the fundamental law
of 1898. The scope of the compensa.tion program was. extended to cover
all wage earners, and indemnities were generally increased. As a re
sult of this decree, the principal insurers of this type of risk agreed
upon and obtained approval for a35 per cent increase in premium rates.
Insurance operations
Insurance companies in France have grouped themselves into numer
ous ,professional associations for purposes of dis cuss io:n:, exchange of
information, general policy-making, and tariff-setting. Nearly every
branch has formed one or more of such organi,zations. Foreign insurers
in Fra.nce also had their own group, as did reinsurance companies, in
surance brokers, agents, experts and employees. One of the most im
portant of.these professional organizations was the Federation Fran
caise des Societes d'Assurances formed in Paris in 1936; a central
council of sixty-two members directed the work of the Federation under
the presidency' of M. Max. Hermant.
Tariffs, which were usually the subject of agreement among'the
companies, to outline certain limits within which each company
calculated its own rates. In the case of fire 'insurance, tile tariff
was the work of the annual meetings of compa:ny representatives in the
AssembleePleniere des Compagnies d'Assurances contre l'Incendie, the
association of fire insurers. Tariffs in accident and life insurance
. varied aocording to the profession o.f the insured, and eaqhbranch in
the aocident field had its own tariff./}I'he companies adhering to an
agreemeI;!.t on tariffs (and by the middle/ 'thirties most of theimpor
did/, in realization of the ,dangers of unlimited com
petition) used them as a basis in: drawing up their rates, whil-e mak
ingtheil;:' OWn assumptions as to interest, loading, claims experience,
ete..
The agency system in France was apparently not unlike the Ameri
can system, with two types of agents: the agent des assurances, who
had a 'contract of more or less permanent standing to represent a given
insurer iI;!. the field; and the courtier (corresponding to the American
proker), an independent intermediary whose function was' to bring new
,business to the insurer or insurers of his choice on a straight com,;.,
m1.sS'::toll Pas is The insuranoecompanies were instructed. by law to main
taitl. striotimpartiality and avoid anysembl:ance of preferential treat
men.t in their relations with the brokers.
While the funds of French insuranoe companies were invested
manly in securities (largely bonds issued or guaranteed by the Govern
.
ment); they played an important role in the real estate market.'
.
They
- 159
made direct first mortgage loans on individual properties, for not more
than one-half or one-third of appraised value; and they acquired real
property by direct purchase or construction.
Mortgage. loans usually formed about 5 per cent of total assets of
French joint-stock life insurers and about 10 per cent of the assets
of mutual life companies. French insurers have little in. ru
ralrealty in foreclosed properties, tending to turn primarily to
lapartmentandbusiness houses in the middle-sized and larger cities of
France and the colonies. The three largest French life insurers, L'
Union, La Nationale, and Compagnie d'Assurances Generales, accounted
for about 40 per cent of the total real esta.te investments of all of
the French life companies. These companies have been responsible for
a large number projects, including small lodgings .at low
rents but mainly large apartment buildings designed for lipper middlaic
class use. Together the three companies owned in 1938, 257 properties
valued at 757 million francs; 60 per cent of this investment was rep-
resented by real estate in Paris.
French reinsurance companies have always suffered from exchange
fluctuations, insufficient rates, and strong foreign competition,es
from German reinsurers, which entered the French reinsurance
market in increasing numbers in the inter-war period. Whj.lethe re
of risks underwritten in foreign countries played the more
important role in the French reinsurance scene, a good part of the
business of the French reinsurers 'has .beenwith domest1.c insurers.
Direct insurers in France reinsured a certain proportion of
wsiness by means of two kinds of reinsurance treaties: the traite
obligatoire, by which both parties were held to the automatic ces
sionand acceptance of a certain percentage of premiums received
direct insurance, 'and the traite facul tatif,by which the dIrect in
surer 'could decide in each individual "cas,a hew much to reinsure, and
the reinsurer had the same freedom of choice in accepting thebusI
ness. Reinsurance societies were not allowed to own shares of the
companies whose business they reinsured unless the statutes of the
latter specifically permitted it.
General statistics
General statistics for the insurance industry in Fra.nce are. a
vailable only for 1937, with the first general report of the FreI:).ch.
Inau.ra.nce Control Department. In that year 1,032 separEJ,te cqmparii,.es
were operating in, France and Algeria,. inoluding all branches' "of '. in
surance. Of this nUmber, 417 were foreign. companies ,1./. of which 139
were not to become subject to state supervision until January 1,1940;
11
Of the 37 represented. in
ness, England led the fieltl"witll,l13 companies 1 next in order .
.being Germ,anywi th 30, Belgiiiirr,-.:nepmark and Sweden each with 25,
and Switzerland and Italy 'el;lchw:lth 24. There were 12 Japanese
oompanies.
- ,160
314 of the total' number operating were engaged in reinsurance or marine
insurance only and were therefore exempt from government control. Thus
the 1937 report was based on 579. companies, of which 278 were foreign.
The total premium income of these companies in 1937 was 9,605 mil
lion francs, of which 2,568 received by 68 life insurance
companies; 1,647 million francs of the total was in reinsurance,
103 million of which was on account of life insurance. 'Premium income
of domestic companies from foreign business constituted abnut one-sixth
of the total, while the premium income of foreign companies from French
and Algerian business eClualled 2,300 million francs,. or almost one
quarter of the total." 'Sixty-eight life companies had 2,450,730 ordi
nary life policies in effect with an insured capital of 54,110 million
francs,. plus 515,549 industrial life' policies and 16,060 group life
policies insuring for 3,032 million and 2,169 million francs respec
tively . 'Of the total business other than life insurance, 27.6 per
cent as measured by premium income went to motor insurance, 25 per
cent to workmen's compensation, 24 per oent to fire, and the remainder
to the various other casualty branches and reinsurance.
Leading companies
largest French insurance companies were those engaged in the
life field, of which three were
L'Union Compagnie dtAssurance sur la Vie, with its sister company
l'Union-Incendie-Accidents, occupied one of the leading positions in
French circles. It pioneered in.the popular life field and
had a large popular branch. At the end of 1938, it had 458,009 poli
cies in effect for an insured amount of 9,133 mill'ionfrancs. Its
premium income in 1938 was 2,324.1 million fra.ncs, and investment in
come, 121.9 million. Its president was Jacques de Neuflize of the
private banking house, de Neuflize et Cie. (see p.64). Anaoridged
balance sheet for the company as of Decemb.er 31, 1938, follows:'
(millions of francs)
Assets Liabilities
Cash, due from banks, etc. '86.7 Capital 50.0
Properties .
232.2 Diverse reserves
1339
Investments (foreign and Mathematical
domestic securities ,1,845.9
reserves 2,419.1
Deposits abroad 210.5 Dividends 12.5
Mortgages, advances on Other, 308.2
policies, etc. 243.5
Other
304.9
Total 2,923.7
Total
La Nationale Compagnie sur la Vie, together with
three sister companies--one writing credit insurance and all types of
- 161
reinsurance, one insuring and reinsuring against accidents of various
kinds, and one writing fire insurance-forma powerful group under a
single directorate.. La Nationale-Vie has among its real estate in..
vestments the largest single property managed Qy any French insurer:
a 35 million franc apartment house at Neuilly-sur Seine, representing
six times its investment in its own home office and 1.5 per cent of
total a.ssets. At the end of 1938, it had 136,563 policies in effect
with an insured capital of 5,675.8 million francs. Its premium 'income
in 1938 was 1,450.6 million francs. Its president was Count Frederic
Piilet-Will, director of the Banque de Paris et des Pays-Bas and of
numerous othe:r- corporations. An abridged balance. sheet of this com
pany as of December 31, 1938, follows:
(in millions of francs)
Assets
Liabilities
Cash. ,depos i ts , receivables 86.0 Capital
18.75
Properties
295.4 Diverse
state and State-guaranteed bonds 833.0 reserves
279.0
Various French securities 181.4 Mathematical
Foreign securities &guarantees 403.'3 reserves 1,720.0
Loans ,and advances on securi- Dividends 9.0
ties and policies
137.0
Other 147.0
Other

Total 2,17 .0. Total 2,174.0
I
The Compagnie d' Assurances Generales sur la Vie was a member. of '
the'Assurances Generales group of three companies under the same'di
rectorate, the other two companies writing fire and accident insurance
respectively.
At the end of 1938, the life company,had 281;235 policiesin-ef
feet insuring to the amOunt of 5,583.7 million francs; its premium in
come in 1938 was 1,186.9 million francs: Its pres,ident was .. E. Mal
let, of thaprivate banking hQuse Mallet Freres et Cie (seep.63).. .An
abridged' balance sheet of 'this company as of December 31, 1938,
- 162
(in millions of francs)
Assets
Liabilities
Cash and due from banks or
agents
79.6
Capital 12.0
Properties
1917
Contingency reserve 81.2
State and State-guaranteed
bonds .
1,191.1
Guaranty" reserve
Mathematical reserve
11.6
1,865.7
Mortgage loans, etc. 11.0 Other reserves
39.0
Other French securities
272.7
Dividends 12.1
Foreign securities and Other
89.9" .
guarantees
195.8
Other
169.6
Total 2,111 .. 5 Total
2,1115
Among the many prominent life insurance companies in France
were: La Phenix...Vie, of Paris, La Prevoyance-Vie, of Paris, Mutuelle
Generale Francaise-Vie, of Le La Mondiale, of Lille, andl'Ur
" baine-Vie, of Paris. Most of the big life companies do anextensiv'e,
foreign business and have reinsurance treaties with various foreign
companies.
Data with to French non-life companies is shown in the
tabulation on the following page. None of these approached the lead
ing life insurance companies in the size of their disposable funds.
Most of them were closely associated with life companies,under a
mon
The greatest reinsurance company was the Compagnie d'Assurances
Generales des Accidents, writers mainly of ,reinsurance but al,;s, 0 en...
gaged in direct writing of accident risks (for statistics, see table
on p.162). Of the group accepting reinsurance exclusively, the largest
company in 1938 was the Compagnie Francaise de Reassu:rances Generales;
an associate of the Swiss Reinsurance Company. This company reinsured
all types of risk, two-thirds of its business being in the fire branch,
of Which in turn over 70 per cent was foreign business. It has a
paid-in capital of 14 million francs and underwriting reserves of 117
million at the end of 1938. Net premium income iIi 1938 totalled 135.9
million francs. The management was in :tibe hands of Maurice Boissarie
andM. A. de Niederhausern. The president wa9 M. Edgar "Bonnet, vice
president and general manager of the Suez Canal company. The Societe
Anony;me de" Reassurances, dealing in all'branches of reinsurance in
many countries," had several' associated companies: La Reassurance
velIe, l'Alllance Regtonale de France, Metropolitan Fire Reassurance
Comp"any of New York, "Transatlantic Securities Company of New York, and _
Progre,ss Insurance Co. Ltd. ,of London. Its paid-in capital was 20
million francs, and underwriting reserves 68 million at the end of
1938. Net premium income in 1938 was 68.6 million francs.
- 163
Principal Frencn. Non-Life Insura.nce Companies at the End of 1938
(i:p, IIions of francs)
Under-
Balance writing Net
sheet reserves premium
Name of company Insurance written total capital' (net) income
Urbaine et la Seine Cie d'Assurances accident, workers' 861.8
225 670.7 355.9
contre les Accidents
La Preservatrice Compagnie Anonyma wide range of-accident, burglary, reinsurance 843.5
95
680.7 368.5
d'Assurances a Primes fixes
L'Union Compagnie d'Assurance contre fire and accident of various kinds 833.7 461.9
1'Incendie, les Accidentaet Risques Divers
, .. . .
Compagnie d'Assurance,s Generales Accidents, accident, theft, .marine, .hail, .credi t,
Vol, MarJtiDies, 'Ris-que Divers, et workmeris' compensation, reinsurance
.. 24.0
432.7 313.2
Reassurances
Mutuell Generale Francaise Accidents accident,burglary, fire, machine, plate": 708.1 554.2 296.7
glass, third party, workmen's compensation,
moto:!, , s tclmess, atorm, inland waterway
Abeille CbmpagnieAnonyme d'Assurances . accident of all kinds 664.2 24.0 5250 264.4
ACcidents
La Providenoe ComPagnie AnOIlym.e d 'Assuran-_ acCiderit,thirdparty,burglary,'live 402.7 18.0 276.6 232.4
ces contre lesAccidents stock, plate-glass
Anonyme d'AsBurances fire 222.5 250 97.0 89.4
contre 1'Icendie
La Providence Compagnie d'Assurances fire 160.1 290 56.8
597
contrel'Incendie
- 164
The principal foreign insurance companies operating in France
in 1938 may be listed as follows:
, German and Austrian
La Victoria de Berlin
(Life)
Deutscher Lloyd Versicherung A/G, Berlin
(Reinsurance, fire, accident, and theft)
Erste Allgemeine Unfall-und Schadensversicherlmgs-Gesellschaft;
Vienna
(Reinsurance, fire, and theft)
Internationale Unfall-und Schadensversicherungs-Gesellschaft;
Vienila'
(Reinsurance)
Koelnische Cologne
(Reinsurance) ,
Agrippina See-, .Fluss-und Landtransport Vers.Ges;; Cologne
Transport and baggage)
Allgemeine Versicherungs fur See, Fluss, lmd
Landtransport ; Berlin
(Marine, transport, and baggage)
Ba.yerlsche Ruckversicherung A/G; Munich
(All branches of t
Iduna-Germania Allgemeine Versicherungs A/G.;
(All branches of reinsurance)
Swiss
"Zurich"; Zurich
(Accident, theft, and third party)
,Italian
Assurances General:es de Trieste et Venise; Trieste
(Life)
Spanish
L'Union et Ie Phenix Espagnol; Madrid
(Accident, theft ,'fire, andmaritime )
- 165
Dutch
"Utrecht"; Utrecht
(Life)
Japanese
Mitsubishi Marine. and Fire Insurance Co'., Ltd.; 'Tokio
(Rei.nsurance ,firemarine, and transport)
English.
Norwich Union Life
(Life -a mutual company)
In add:1tionLJ..oyd' S .of, London .. hadmimjr andagents
in France, among which were AnglQ-French Underwriters, Paris;
Office ConiJinentale d'Assurances; and Alliance lIiternationale
d'Assurances et de Commerce.
XIII. StockE:x.:changes!/
111e principal securities wereloca1iedin:t=>8.:Sis,'
but, in the of BordealiX,Lille , LYons,
Marseille, .. a.:ndToulouse. :... ,MeasllredintermsOf
securities listed, trading volumes, and national leadership, however,
the Paris exchanges dominated the. 'IlEttion 's ,secllr'ities .. marketf3at. least
to the same degree that the New York exchanges' p:re,dominEtted in tl+e .' .
United States. Theprovinqial excb.a.Ilges.,werepat'ternedrouBhlYEtfter
the Paris markets, but they traded pri:rn;arily in securities 'of local
origin.
The building of the Paris Bourse housed three separate securities
markets. Of these, the official market - the Compagnie des Agents de
Change" or "Parquet" - was dominant. The others were an extremely active
curb market gj, known as the Coulisse, and a loosely-regulated which
had only a shred of official standing, known as the Marche Hors-Cote.
The latter more nearly resembled an exchange then an tl over the counter"
market in the American sense of the term.
The Compagnie des Agents de Change, colloquially known as the Par
quet, was-an organization which enjoyed a .semi-govenunental status; in
this respect it was entirely.unliket.;he New York or London, Stock Exchanges.
Prepared by Trading and Exchange Division of Secur.ities and Exchange
Commission.
The use of this term does not imply any resemblance.between the
functions of the Coulisse and of the New York Curb Exchange
- 166
Governmental legislation had accorded the members of this exchange a
monopoly in transactions in certain securities, including issues of
the French Government, and the had characteristically
exercised strict surveillance over many phases of the exchange's
activities.
The Parquet was almost entirely dissociated from the investment
banking systems of France .. This dissociation was very much more
marked than in the United States and was traceable to the character
of the restrictions which were placed by law upon the members of the
French exchange (see next section).
The Parquet's list did not include the major industrial concerns
of France to the same degree as the New York Stock Exchange's list
covered American industry. To be sure, a large nlxmber of insurance
companies, textile companies, railways, electric companies,
department stores, and other corporations were represenT/ed on the
Parquet, but many of the major enterprises of France were not so
listed. This was the case because a large proportion of the indus
trial enteTprises of France were family-held corporations whose
securities were not traded on any public market. Trading on the
Paris exchange, therefore, emphasized other types of issues, notably
issues of thA "French Government and of foreign governments.
The interest of the French public in its exchanges was at least
equally as great as, and perhaps greater than, that of the American
public in its organized stock markets. French economic society
characteristically included a large thrifty middle class which se
curitiesfor"investment. Because of the prominence of this class
'and the character of the issues traded on the French exchanges, it
was likely that interest in exchange transactions was fairly per
vasive among the French people.
Membership on the Parquet
Membership on the Parquet was always limited by law to a specific
number which was changed from time to time. The latest change occurred
in 1898, when the number was fixed at 70. As was the case on the
American exchanges, membership on the Parquet was a property right which
carried with it of introducing a> successor. Nominees
introduced by a retiring member, however, had to be citizens of France,
25 years of age or over; they were supposed to have served a minimum
probationary period either with a broker or some other approvE{d bus.i
ness e@tablishment in France; and.their nomination had to receive the
approval of the Chambre Syndical. It is significant that the actual
appointment of the nominee to membership was made by the President of
France, and that, upon appointment, the member took an oath as a public
official of the French Government.
- 167
Because of the, limited number of memberships on the exchange, the
acquisition of a membership was ordinarily expensive. Not only did the
member's nomination have to be purchased, but a sizable bond also had
to be deposited with the Chambre Syndical as security against the
member's insolvency. However, the prospective member was required to
supply out of his own resources only one-fourth of the cost of his
nomination and of his bond. For the remaining capital, the member
might take on silent partners, subject to the approval of the Chambre
and the Minister of Finance. The liability of such silent partners
was' limited to the extent of their invested capital.
The value of a membership in the Parquet arose primarily from the
monopoly privileges granted to such by French law. Of those,
the most important privilige) was a monopoly on acting as broker in se
curities listed. on the Parquet. 1/ No simil8.r monopoly -vras accorded to
any group in the Qrrited States or Great Britian.
While the Parquet member enjoyed privileges which were not available
to stock exchange members in most other countries, he was also saddled
with certain extraordinary restrictions and obligations which did not
'exist elsewhere. In the first place, a scale of maximum commissions
was prescribed for Parquet transactions; by contrast, the only com
missions fixed by the exchanges in the United States were minima, not
maxima. More-over, the .member of the Parquet was strictly forbidden to
act as a broker in any securities other than those listed on the Parquet.
When his customers wished to effect transactions in flecurities traded
elsewhere, the member of the Parquet had to give up the order to some
other for execution. Presumably, reciprocal arrangements existed
between the Parquet members and the "coulissiers", or other broker groups,
similar to the reciprocal arrangements existing between members of dif
ferent exchanges in the United States. Other prohibitions included a
ban on advertising, on maintaining offiq.es outside" Paris, on having
outside business interests, and on advising customers with respect to
the purchase or sale of securities. In short, the function of the Par
quet member was limited exclusively. to the taking and executing of
brokerage orders on the Parquet, with all possible conflicts of inter
est eliminated. gj
Although the agents de change were not barred from carrying ac
counts directly for their customers, the limitations upon their
ities as advisers and solicitors of business and the limitations upon
the location of their offices and upon their advertising resulted in
their the larger part of their business through intermediaries.
However, the Coulisse encroached upon this monopoly to a limited
extent. See below, p. 171.
m fact, these rules were far from being strictly followed.
- '168
Of these intermediaries, the most important were the remlSlers or
"spit-commission men". These remisiers solicited custom.ers, offered
them advice, and p.erforned the usual functions of the American. cus
tomers' man, and werecoIll.})ensated for tneir services by receipt of
some part of the commission of the agent many 'of these re
misiers were also members of the Coulisse. In addition to the re
misiers, commercial banks of France also developed .&1 important
volume of business for the agents de change through their secu.:rities
salesmen, or (see p. 59). 1/ The ballks, like the re
misiers, were entitled to a split of the commission for the business
which they originated.
Governlnent of
Since the laws of France relating to the Parquet were far more
detailed and restrictive than was the case in the United States, the
residual area in 'which the members of or agents de
might govern themselves was much smaller. Self-government by members of
the was effected through its Chambre Syndical, an elected body
of eight members and a The Chambre enforced discipline,
acted as an arbiter in disputes between brokers and in disputes of
brokers with the public and administered the collective responsibility
of its members. members were compelled to accept responsI
bility for the financial obligations of all of their fellow members.
If any member failed to meet his obligations' either to his cusEomers
or to money- or security-lenders, hisunfulfilled obligations were
promptly taken over by the Chambre Syndical and his customers' ac
were transferred to another member. The defaulting member's
obligations were then met by the bond which he had on deposit with the
Chambre,. by the general f1lllds of the Chambre built up by a tax on com
m:1ssions, and, if need be, by a levy on the assets of the other mem
bers of the exchange-.
Like the governing boards of' exchanges in other thi3
ehambre might summon members before it, scrutinize their records, and,
above all, compel them to take steps to strengt:.:J.en their finfu"'1cial
position. The disciplinary powers of the Chambre, however, were lim
ited in important respects. While the Chambre could censure a member
and could ban him from the floor for periods up to one month, it was
not empowered to suspend or expel him; it might, if it saw fit, re
commend such action, but the ultimate power to suspend or expel a
member rested with the Government.
Securities admitted on the
The procedure whereby securities were admitted to trading on the
Parquet was similar in many respects to that followed in the United
y The demarcheurs, however, primarily sold securities for the ac '.
cauntt of -banks , without recourse to the Sto.ck Exchange.
- 169
States. French Government securities were automatically listed. Other
French securities, however, had to receive the approval of a committee
of the Chambre before they might be traded on the Parquet and quoted on
the official list. A French corporation desiring to list its securities
had to file articles of incorporation, describe the particulars of the
issue, prOVide copies of the minutes of the organization meetings and of
the statement of the shareholders' auditors, provide-a record of dividend
payments, and provide a recent balance sheet. The corporation also had
to agree to provide the exchange with minutes of subsequent meetings
and to maintain a transfer office in Paris. Moreover, 25 per cent of
the authorized issue had to be outstanding and fully paid for, the
value of the security had to be more than nominal, and the floating
supply had to be sufficiently large to that a'real exchange market was

The ,standards with respect to foreign securities were 'stricter
still, as a result of certain scandals in the issuance of such securi
ties prior to World War I. Moreover, such securities could not -be
listed the approval of the French Government.
There were about 2)500 securities listed on the Parquet, among
which, were those of the French Government, the City of Paris, the
important banks, railroads,and utilities of France, and issues of
numerous foreign gover:n:rnents. South ""African, gold mining shares were
popular speculative medium. No important American securities were'
-included in the listjthis was due partly to- certain tax difficulties
and partly to the fact that French stocks were traded predominantly
in bearer form. with coupons,' attached, rather than in registered form.
as is the case with American stocks.
Trading on the Parquet
With the exeepti'on of about 70 very issues, securities OIl the
Parquet were traded solely on a cash basis. There was no
unit in such securities and most orders were ofinvestmentbrigiri
a:n.d very small. Orders m.ight be entered at the market (aumieux) J
at a fixed price (a cours fixe), at the average between the high', and
low prices (aucours mOYE?n), Occasionally, too, orders were entered
for execution at the opening price or the closing price.;The actual
precedure whereby buying.and selling orders met in the cash market
was extremely simple and in certain aspects was reminiscent of the
cabinet system of the New York Stock Exchange. No specialists,
floor trade:rs, or odd-lot dealers wereinvolvad, by. virtue of the
prohibition against dealer trading by Parquet members. 'Brokers
simpiy matc:p.ed buying and selling orders on the floor and a trans
action was effected whenever hids and offers m.et at a. common price.
Throughout the session, a public record was kept of all bids, offers,
and transaction pric6s. '
After an order had been executed, the obligations of the buying
and customers were roughly similar to those of the buyer or
seller on the New York Stock Exchange, In theory, the buying dUS
tomerwas obligated to pay for his stock immediately, and the selling
customer was obligated to make immedi.ate delivery of the securities
involved. Actually, however, delays in delivery might occur of as
much as five to fifteen days, thus deferring the time of actual pay
mente 1/ If a customer failed to deliver or pay for his securities
after aprescribed length 'Of time, however, he might be "bought in"
or Hsold out "by his broker.
The term market Parquet
Term trading on the Parquet was permitted in about 70 securities
.which constituted the most active securities on the exchange. ?J
Among them were certain issues of French rentes, issues of the leading
banks, and an assortment of rail, utility, indust.rial and foreign issues.
Term trading, even thoug..h. thus confin8
r
l} probably exceeded all cash
trading in volume, but the number of orders executed in the cash mar
ket is believed to have been much larger than the number in the future
market.
When a customer-traded in the term market, he was not obligated
to settle with the broker for his commitments Until the next semi
monthly settlement period fqllowing his transaction. In view of the
risk taken by the broker with respect to the customer '.sability to
pay for or deliver his securities at the semi-monthly settlement date,
agents de chan.Se would accept ,customers for such. trading only if they
came well recommended and were financially sound.. As further insurance
aeainst loss, the customer had to d.eposit and maintain margin (cou
verture) in either cah or negotiable securities. The minimum re
.. guired margin was changed from time to time, ranging during the
'thirties between 20 and 40 per cent of the customer's commitment.
Unlike the cash market, orders in the term market had tp be
entered in a prescribed trading unit. For stocks, this unit was or-. .
dinarily 25 shares, but might be 5 or 10 shares in certain i,high-priced
issues. ]for bonds, the unit varied from issue to issue . As in the
cash market, orders were accepted at themarket,at a limit price,
or with discretion, but, unlike the cash market, orders, to buy or
sell at the average price or at opening or closing prices were_not
acpepted.
A term order might be entered either on a firm basis (ferme)
or on an optional basis (a primes) .. If an order was entered firm,
the seller was obligated to deliver his securities and the
Unlike the New York Stock Exchange, there was.nofixed interval
after which payment and delivery were ordinarily required.
Term trading,. common in fEurope, finds no counterpart .on American
exchanges'.
- 171
was obligated. to payfqr, next semi-monthly set
tlement' date,., 1/... When a Cllst'ome:r'rrlfl(1.ea .. purchase in the optional term
market, he simply bought the ,option a certain designated
s6curities on the 'next settlement a.lthough a.t a price higher than
that prevailing in the firm market. When the settlement . date arrived,
he might reject the ,option, he pay the
premium., that the optional price and the
firm price;. or he might elect tq continue the option until the next
settlement date, al though this,' privilege could ,only be exercised for'a
maximum of five periods. It '1.8. apparent that apurchasa in the op
tional term market wassubstaptially equivalent to the purcha,ae of a
call option in the American and. British, Moreover, '. other f0:t'mB
of option trading existed on the Parquet which were the equivalent .of ,
the American and British put and spread. The French added to the. com.:.,
plexities of option trading by combing option orders with firm orde:rs,
invarious forms, largely in order to hedge their firm orders. Option
trading was almost exclusively carried on by professional speculators.
The method of trading in the term market combined certain features of'
the call an;d continuous auction markets on the American exchanges An
employee of the Parquet called an ,1ssue from a rostrum in tp,e 'center
of the trading area, and'then he and, the. assembled brokers sought to
price at which, the ,maximum volume of businesscould,'be.
Onoe.a.greement was reached, all bargainswere'struckat'thatpriceand
then.ext issue. was announced .. After the session, the brokerscongre..;
gated at a designated point where each of the 70 issues was read ,off
i:nturn, ,and the broker,s s ta.ted the prices at which transactions had ';
been effected. An official record was then made pf ,the. opening,
low, and closing prlcesfor firm. trades, anq of the high and low iprices
for optional trade$ .. No .records of trading
Settling transactions on the Parquet
The Compagnie des Agents de ,.change maintalnedan elabdra-te mechan-.
ismor cleari:qg, and settling . among its members , a pro
fact tha:t eaahagentdechange
to maintain anaccountwith.the Bank of Fra.n'oe where the Bourse' s
treasury Commune -alao mailltainedits
In se,ttli:ngtra.nsactionseffected in. the c.a.shmarket, the agent
de cha.i'Jge waanot.oompelledto use theaettl1.DB and clearing machinery
set up by the Parquet. Indeed there was .someevidencethat the ma
jority-of suchtransa_ctionswas settled privately between the brokers
involved. The official procedure involved in such, settlements, how
ever" was simple, involving delivery 'ofseOllrities at a central clea1'
ingoffice where a record was kept of the resulting credits to sellers
buyers. At the c10seo .eaoh day the 'debits
.
and credits
., I
The Parquet had a unique provision,' however, whereby the buyer
might compel earlier delivery by the seller. simply by paying for
the securities prior to the, settlement date; thisprlvilege waS
known asfaculte d'escompte.
- 172 -
Qf .each bf the 70 agents de change were totaled and a balance strnck.
Thus, each broker at the end of the day either owed a balance, or had
a balance due 'him; these balances were settled by transfers in the
books of the Bank of France bet'Ween the accounts of the brokers on the.
one.hand, and that of, the OaisseCommune on the other.
In settling tranBactionsintheterm market, t4e agent de change
was 'to use the settling and clearing machinery set up by the
'Chambre Syndical. These transactions were reported daily to the cen
tral clearing actual- settlements of the these transactions
,ocau.rred C>Illy seIni ,,:,monthly; the settlement periods commenced on the
15th and last day of each month, and extended fora period of several
da.y;S 0 U.n.. l.. i.....k.e se.. t.tleIIl).ents' transactions in. thecaS.. h mark.et, set.tle
ments only the offsetting of the cash items
of . broker against another, "1>ut also the offsetting of his obliga
tionS to deliver and receive .
',' '. . - I
Financing term tranSactions on the Parquet
As the settlement date approached, the speculator who had bought
or sold on a firm basis in the term market was faced wtth the problem
of,paying for securities bought or delivering securities ,sold. The
speculator might meet his obligations in any of three ways: If he was
a buyer, he might follo'W the obvious oourse, of pB.Y,'ing for his stock
out of his o'Wn funds; or if he was a seller, he might deliver the stock
from his own portfolio. But if a buyer did not have the necessary
funds or if a seller did not have the neoessary ties, other steps
had to be taken. One alternative for such speculators was to liquidate'
theirobligati0r:ts by sel'+ing out/their long positions. or covering their
short The other al;trernative was for the buyer 'to borrow
fu..!1ds--tO' pay for oy the seller to borrow the seouritieS to
make delivery.
" If the buyer borrow /the money necessary to pay for the
stock, he would ftis broker of his iritention before
the sattlement date/and leave it to the broker to arrange the loan.
The broke:r might have idle ca.pital available to 'finance long
speculators, fUnds obtained either from his own capital or from the
margindep0f;jits of his customers. ,In addition, persons interested, in
making lqans might notify/the agents de change that they had funds a
vailabl.e'for financing ca.fryovers; suchlenders'included the large com
mercial and investment banks and,' at times, p:rivate capitalists and
non-banking concerns. 'The technique for making such loans from out
'side sources is described on/p. 56. .
A speau.lator with.a.shortpof:'itiondid not ordinarily have any
difficulty in borrOWing seClir:lti'estp make delivery since buyers u
sually existed who were willins to'supply the'securities necessary
to carry the seller over to the nert settlement period, in re1:iurn for
a loan of the cash 'Which' was due the seller.. Sometimes, howeve:r" when
the'short position was v;erylarge,it was necessary for the short
- 173
seller's broker to borrow securities persons other than specula
tors who were carrying over a.long position. In such situations, the
carryover 'was effected by the short sellerts purchasing the
securities from a lender for immediate delivery, and promptly resel
ling them to the lender, at a' slightly lower price, for delivery at .'
the next term. The eifference between the purchase price and the re
sale price was known as the deport; tt was equivalent to the loan
mium. in the American market.
The Coulisse
The limitations placed upon members of the Parquet by law were
so stringent that they left cons iderable rO<?!IL for competi t.ionby per
sons not subject to such limitations. As- a result, throughout the
past century, the agents de change were plagued by competitors, many
of whom conducted their illegal competition literally.at the doorstep
of the Bourse. The principal competitive market, which actually
ated within the portico of the Bourse, was known as the Coulisse, and
its members were referred to as the coulissiers. A.ny person might
]Ursue this activity, and no prohibition existed against his trading
as a principal or giving advice to customers.
Circumstances compelled the French Government to accord legal
status to the coulissiers and to arrange a. modus vivendi between them
and the agents de chanee. Pursuant to thia agreement, tra.nsactions
were effected on the Coulisse in certain securities which were on the
official Parquet list, and in whichm.embers of the Parquet had a le
gal monopoly. However, whenever a coulissler effected a transaction
in such a security,.he was obliged to obtain from an agent de change
a memorandum for which he had to pay a fairly sizeable percentage of.
his commission. Trading on this basis, the coulissiers conducted mar
kate in issues on the official Parquet list (notably markets in cer
tain issues of rentes) which exceeded activity on the Parquet several
times over. 1.1
The couliss iers were voluntarily organized into a syndidat which, '
by.mutual agreement of its members, was accorded powers similar to
those of the Parquet's Chambre Syndical. They had, however, no col
lective.responsibility and membership in the syndicat was voluntary.
The syndicat admitted issues officia.lly to the Coulisse and pub
lished a list of official prices for suchissuee similar to the lists
11 The ability of the coulissiersto maintain active markets in Par
quet securities'W"as enhanced' by the-fact that when a person bought
and sold the same security on a given day on the Parquet, he was
obliged to pay commissions on e1ther his purchases along or hrs
sales along, whichever were the larger; this practice was known as
franco. Thus, coulissiers were able to effect large volumes of
transactions daily on the Parquet without paying commissions on
mu.ch of their trading.
- 174
pUblished'by the Parquet. The. list of issues traa.ed on the Coulisse,
although nothearly as comprehensi'Veas the Parquet's list, was quite
Particularly important on the Coulisse were is'sues of for
eigngovernments which the Minister of Finance had.refused to allow on
the Parquet. In addition', a fairly representative group of industrial
and financial issues were listed.
The trading methods on the Coullsse were generally similar to
those on the Parquet, with ce:rtain material reservations. Since
coulissier might act as a principal, he sometimes filled a customer's
order by buying or selling for his own' account, but when this occurred
he was 'obliged so to state, according to the rules of the syndicat, and
he was prohibited from ,charging a commission. Another difference lay
in the fact that term trades on the Coulisse were on monthly,
rathaI' thana semi -monthly,basis. Moreover, ' unli ke the agent de
change, the coulissierwas not compelled to settle terni transactions
through the central clearing system provided by the Coulisse.
. I
Beca.use of the a'bsence of collective responsibil1tyandthe un
certain natureof the discipline' imp'osed 9nmembers ,of the Coulisse,
the rates charged by lenders for money used to carry transactions of
thecoulissiers' customers were higher than the rates charged members
of the Parquet, and varied With; thefinancialstabillty of the ' in
dividualcoulissie.r and the character of the collateral 8upp11edfor
the "loan'.
The Marche Hors;..Cbte
The:thlrd market housed. by-the Paris Bourse was' the Marche Hors
, Cotee ,'This market was in, effect an adjunct of the Coulisseandoc
oupiedapart of the space in theeol'Onnade,of the Bop.rseset'aside
for the use of'the C:au.liase.The'market was run by. the ,syndicat of
the Coul is seand its prineipal partA. cipantswere the ooul1as :ters
Dealers who did not belong to the synd:l.cat , however, were not pre
vented from trading in the Marohe Hors-Cote.
Isaues' admitted to 'this marketwereoroiriari1y 'unseas:onedse cu-,
rities riotyete>lig:tble' fbr:listing ori'theCoulisse or Parquet, or
issueswhieh were too small and inactive to warrant listiilg on the
larger markets. Three days prior to the admission.of securities on
the MareheHors-Cote, a list of thecompany1sdirectors, its most
recent balance sheet, a.nd its by-laws had to be filed with the syn
dicat. '
The -tra.ding rUles uS,ed in thisma.rke't were the same as those of
the Colilisse,; Once a'wee'k; 'prioes' Qfsecurities in this market were
publ:l.ehed in the official Coulisseprice lists.
- ---
- - - --
CIVIL AFFAIRS HA.:NDBOOK
on
FRANCE
,.;.. - ....
Section Five
on
MONEY AND
PART C
- - -,
The period .of less than a year d U ~ i n g wnich France
was an. active belligerent witnessed few new develop
ments; .although the burden of war expenditure made
heavy demands upon the credit system. Under the
Germar.. occupation, there has been little ,scope for
normal banking activity; the resources of the central
bank and indeed of the,whole credit system have had
to be mob11izedby the Government to meet the oppres
sive demaildsfor occupation costs which have been
asserted'by the GermEl.ns. T h ~ result has been a.general
monetary inflation which despite the regimentation of
French economic life has produced seriously disturbing
pressure on'the price level.
- 175
C. WAi< DEVELOPMENTS
I. Pre-Armistice Period
Gold and foreign exchange
As mentioned in' the first France entered the second World
War with a very substantial gold reserve amounting to the equi of-----e.
around 3 billion dollars. The bulk of this gold was in the hands of the
Bank of France, which on the eve of the war held gold equal to nearly
60 p-er cent of its note circulation and other sight liabilities as com
pared with the required ratio of 35 per cen.t. Nevertheless, in view of
the prospect of gold losses during the war period, a decree was issued
on Se,ptember 2, 1939, relieving the Bank of France of its obligation to
maintain a fixed gold reserve. It was deemed necessary to institute
close control over foreign exchange transactions and over foreign assets
held -by French residents. These measures were necessary in order to
prevent flight of capitalfr9m the country and to prepare the way
for themobilizatiorJ. in support of the war effort ofp'rivately-owned
French foreign assets.
A government decree of September 9, 1939 (supplemented and
by a nlJ.mber of 'subsequent decrees and orders), placed all foreign ex
change transactions under strict control. Thenceforth any' such trans';"
actions were to be undertaken only through bankers and brokers licensed
as offici-al intermediaries. These operations were to, be supervised by
a special office under the management of the Bank of France (the Office
des Changes). Moreover, all transactions in gold were subjected to the
authorization of the Bank of France. The exchange control regulations
were stated in broad terms covering not only 'transactions in
exchange proper, but also such matters as dealing in and exporting
foreign securities.
A decree of September 9, 1939, required that all persons res.ident
in France (including French branches of foreign companies) register
their foreign assets with the Office des Changes. Moreover; all com
panies located in France,whether of French offoFeign origin, were
required to register their holdings of gold. A further'decree dated
October 4,- 1939, required all French companies to thei1" par
ticipations amounting to 30 per cent or more 'in the capital of a foreign
country. The Office was authorized to require information from the
holders of-foreign assets concerriing any changes in their ownership.
The actual mobilization of private French foreign assets for govern
ment purposes was initiated: only in May 1940,and as a result of the
military collapse was never carried out. Two d.ecreesof May 20 re
quired all owners o.f American or Cane.diandollar curren67 or btdnk bal
ances, or of securities denominated-in these currencies, to deposit
them in a list of spe"cified banks. A further decree on the same day
required all .companies of French or foreign origin whose principal
field of activity was in France to-sell their gold holdings (in coin or
- 176
in bullion) to the Bank of France. Before the requirements laid do\Vl1.
by these de,crees could be complied wi th"the 'collapse 'of France occured,
and On J-Qlle 23, 1940, a decree issued by Marshal Petain, without abro
gating the decrees of May 20, suspended their
With the outbreak-of the war and the introduction of exchange con
trol, the exchangC3 rate between the franc and the pound ste:rling which
had fluctuated narrowly around 17.6-1/2 francs to the pound during, 1939
was fonnally pegged, at this level. The Bank of France fixed its 'buying
and selling rates for the pound sterling,at 176-1/2 and 176-5/8 francs,
respectively. This relationship still prevails (formally) and was
adopted for,the exchange relationship between the pound sterling and the
franc currencies in the French colonial areas which subsequently came
under the control of the De GaullE:} Committee.
T:i18 same stability was not maintained vis-a-vis thE? D. S. dollar
by reason of the'fluctuations in the dollar-pound sterling rate. This
latter rate, which had been mai!ltained at around $4.68 in the first
eight months 01'1939, was pegged at a-middle rate of $4.03 after thA
ou'tbreak of the war. This rate covered only official transactions,
however, and until June 1940 British authorities permitted foreign
residents to deal in "rree" sterling balances at a market, rate which
rapidly went to ,a considerable dis.count against the official rate.
Thus, although the official buying and selling rates of Bank of
France forU. S. dollars were 43.80 to 44.00 francs per dollar: respec
tively, 'the market rate for francs -obtained by arbitrage through London
went above 50 to the dollar in April and. May 1940.
In February 1940, the Bank of France , by agreement with the Minis
te.r of Finance,revalued ,its gold reserve at 23.34 milligrams of gold
(nine-tenths fine) per franc, as compared with the rate of 2'7.5milli
grams maintained since November 1938. This gave the franc a gold value
of 2.36 centa, again somewhat higher than its value in the exchar:tge
market, even at. the official rate. A.t the same time, gold valued at
jO billion francs on the basis of the new parity was transferred to the
Exchange Stabilization Fund against payment in negotiable thfee-month
Treasury bills bearing interest only if sold in the .marKet, The Bank I s
gold reserve, raised from 97.3 to 114.6 billion francs by the 'revaluation,
there'by ,fell to 84.6 billion francs (equiyalent to almost exactly 2
billion dollars), a figure which has remained unchanged in the Bank's
statements ever since.
In the absence of reports on the gold holdings of the Stabili
zation Fund since May 1939, no precise information can be given concern
ing French gold losses up to tnetime of the French collapse., The
transfer from the'Bank of France in February 1940 would indicate that
by that time the Fund had lost most of it's holdings in May 1939 (valued
at 477 million dollars), except for an amount valued at l39,million'
dollars which had been transferred to the Bank of France in August 1939.
In the period from March 1940 through the armistice in June, further
losses were no doubt suffered in view ofthe very large expenditures
- 177
of the Government for supplies in the United States. By the
time of the the FUnd's remaining:tJ.oldings and almost ail of
the 2 pillion in gold still owned by the Bank of France had
been removed from the c,ountry and placed in safekeeping at various
points in the the United Kingdom, Canada, and the United
States. The bulk of this gold is currently under the control and
trusteeship of the three last-mentioned powers.
It should also be mentioned that in May 1940 the National Bank of
Belgium entrusted to the Bank of 228 million dollars in gold
which was evacuated to ,Dakar before the French collapse. Subsequently;
it appears that under German pressure this gold was brought back and
delivered to the Reichsbank. As a result, legal proceedings have been'
instituted in the United States by the National Bank of Belgium to re
cover an equivalent amount of gold from the stockf? held under earmark
for the Bank of France at the Federal Reserve of New York.
A similar suit has been initiated by the Bank Polski with respect
to an amount of 64 million dollars in gold which that Bank had deposit
ed in safekeeping with the Bank of France'. It has been reported, ,how
ever, that this gold was found intact in French Africa and that lts
release is the subject of negotiations between the French and Polish
authorities.
Anglo-French Monetary Agreement.
In Decem1:>er 1939 a far-reaching but,short-lived agreement was
announced between the Britlsh and French Governments. 'The official
franc-pound sterling rate established in September was confirmed, as a
permanent rate for the duration of the agreement. Both partiesi,greed
to 'supply their own currency to the other party in unlimited amounts
against payment at the officlalrate in the other party's currency.
Franee'was thereby assured a ready supply of sterling currency for pur
chases in the United Kingdom and in the rest of the Sterling Area
(roughly, the British Empire except for Canada and Newfoundland); by
the terms of the agreement, however, France could not use sterling to
make purchases outside ,this Area. At the same time the' United Kingdom
was assured of obtaining the franc currency required,for purchasing
war supplies from the French Empire and for meeting the expenditures of
its 'expeditionary forces in France. ,It was provided that'if the net
acquisitions of foreign exchange by either country under this agreement
rose above a stipulated figurejthe excess amount could, at the option
of either party, be converted into 'obligations expressed 1n the cur
rency of the creditor country and yielding interest at 3 per cent per
annum. Furthermore, the country accumulating the other's currency'W'as
guaranteed any loss which it might thereby incur from exchange
fluctuations. It has been reported that until the time of the French
collapse the balance remained constantly in Franc's favor, although it
never reached a figure where obligations might have been lssued.
I
- 178
Other features of the agreement were undertakings regarding the
snaring of the war expenditures in gold and dollars incurred by the
two countries; agreement upon the raising of any foreign loans
or by either party; abstention from any import restrictions on
trade hetween the two countries for proteetive purposes or for ex
change reasons; and allocation of raw materialsupplies -from the two
Empires. two countries agreed to collaborate in the pursuance of
their domestic price policies.
This agreement as a whole represented a bold step in pooling the
of the two allies in their common war effort. In the finan
cial sphere it was. the equivalent of the political union of the two
countries which was proposed by Winston Churchill in the days immedi
ately preceding the French collapse. I ..
Bank of France
Aside from the changes in the gold reserve cited in the previous
section, the most important developments in connection with the Bank
cirFrance in the pre-armistice period were in its relations to the
Government. On September 1, 1939, -a convention between the Bank and
the Governrrlent drawn up secretly a year earlier was ratified, author
iZing the Bank to grant temporary advances to the Government up to
25 billion francs for the expenses of mobilization. In February 1940
the "profits
Tl
from the revaluation of the Bank's gold reserve, amount
ing to 17.3 billion francs, was allocated to the Government, which
used this sum, together with 3.2 billion francs taken from the assets
of the Stabilization Fund, to repay the Bank in full for the 20.5
billion francs of temporary advances authorized
in 1938. The maximum. amount of the temporary advances for mobiliza
tron, then the only form of advances granted by the Bank to the State,
was raised to 45 billion francs in February 1940 and to 70 billions by
an agreement of June 6, 1940. The actual amounts drawn by
ment under this arrangement, however, were only 20.1 billion francs by
the end. of February 1940 and 36.3 billions by June 10 (the./date of the
last statement of the Bank of France before the armistice).
The n0te circulation of the :Bank of France rose sharPly from
123.1 billion francs on August 17, 1939, to 146.1 billion francs on
September 7; this movement reflected a strong hoarding tendency on the
part of the population in the face of the acute crisis and
then the outbreak of the war. In the period through the end of April
1940 there was a further small rise theriote circulation to about
156 billion francs. This relative stability during the period of the
"phoney war" was broken with the openiD.g of the German offensive In
Western Europe, and by June 10, 1940, the circulation had risen to
174.5 billion francs.
Mention should be made of another special decree issued on Sept
tember 1, 1939, authorizing the Bank of France to issue further sup
. plies of notes in 5, 10, and 20 franc denominations These were
- 179
intended to replace coins withdrawn from circulation underanauthoriza
tion of the same da.te, i.e., 5 franc nickel coins and 10 and 20 franc
silver pieces.
In contrast to the measures taken at the outbreak of the first
World War, no moratorium was declared'ih September 1939, and the dis
count rate of the Bank of France remained unchanged at the low level
of 2 per cent established on January 4, 1939. The 'outbreak of war en
tailed, of course, a considerable shock to the financial community and,
aside from the withdrawal of notes by the general public, there was a
rush for liquidity on the part of financial institutions. 'Between
August 17 and Septemoer 7, 1939, the amount of bills discounted by the
Bank of France rose by l4.1billion francs, while at the same time sub
stantial additional assistance was given to the market in the form. of .
collateral loans. However, almost the entire increase in bills dis
counted and in collateral loans had been eliminated by the end of Novem.
.ber. Again in May and June 1940, the Bank was called upon to .
liberal volume of credit,to which it again responded withoutanl:ri
crease in the discount rate. The amount of bills
9 billion francs from.May 9 to May 30,but receded somewhat by June 10.
The following table shows the changes which occurred ill"
cipal balance sheet items of the Bank of France between August 17, 1939
land June 10, 1940. '
August 17, 1939 June 10, 1940
(billions of francs)
Gold reserves
97.3
84.6
Bills and advances 12.7 28.6
Temporary loans to State (old) 20.6
Temporary loans to State for
mobilizati.on 36,,3
Government securities
15.5 45.4
'Notes issued 123.1 174.5
Current accounts
25.7 26.5
Over this period' as awhole,the !'ise of 51 billion francs in the
note circulation was alIilost ... exactly matched by new loans to the State
(36 billion) and the increase in holdings of bills and advances (16
billion). .Thechanges assets items are associated
with the gold operations (revaluation and transfer to Stabilization
Fund) 'described above.
- 180
Other banking developments
Statistics are not available for all French banks in this period,
but the general experience may be illustrated by the position of the
four old large deposit banks. Deposits with these banks declined by
3.3 to 33.3 billion francs in the month of August 1939, reflecting
withdrawals of currency in the last half of the month. Their holdings
of bills fell by 6.9 to 18.8 billion francs in the same month, and in
dication of the extensive resort to the facilities of the Bank of France
by the banking system. As was usual in time of crisis, the four large
deposit banks held exceptionally large case reserves for the end of
August, amounting to 6.4 billion francs or nearly 20 per cent of their
deposit liabilities. Within two or three months, however, all of these
items had returned to approximately their pre-war level.. In the re
maining portion of the pre-armistice period, the balance sheets of the
leading banks were characterized by rising deposits matched by increased
holclings of bills (doubtless for the most part Treasury bills). No .
statements of the four large deposit banks are available for April-June
1940, but at the end of March their deposits had already reached 46.6
billion francs and their holdings of bills 34.1 billion. In general,
this expansion reflected in the inflationary impulse given to the cre
dit system by the large government expenditures financed by advances
from the Bank of France.
From the end of 1938 to the end of 1939 most of the regional banks
witnessed an increase in deposits., although to a lesser degree than the
large Itestablissements de credit It . The sirine was true of the two large
business banks, the deposits of the Paris-Bas advancing from 2,796 to
2,926 million francs while those of the Bank de 1 'Union Parisienne
passed from 828 to 1,056 million. But the deposits of the Union des I
Mines dropped from 477 to 433 million francs. The relative stability
evidenced by the business .baDksis attributable to the special charac
ter of their customers, consisting mainly of the industrial corporations
or trading firms; duringthia period, in contrast to the occupation
period, such enterprises were able to keep their working capital in in
ventories and held only a normal volume of liquid funds.
There was a brief flurry in the money market -in the critical weeks,
of August and September 1939, but it soon subsided, le,aving money rates
somewhat higher than before notWithstanding the increase in the funds at
the disposal of the market. Daily money which in the summer of 1939 was
quoted around 1.25 per cent rose to around 1.75 per cent with limited
transactions. The private discount rate for first rate paper, which had
stood.. slightly below the official rate (2 per cent), rose slightly above.
Shortly after the outbreak of the war the Treasury increased the interest
rate on short-term bills (75 to 105 days) from 1.75 to 2 per cent and for
longer maturities from 3.5 to 4 per cent. This rate structure remained
little changed until the Frenchcollapse; there was some easing of the
market in the spring of 1940 and rates hardened again in May and June.
- 181;
As might be expected,, there were substantial withdrawals from
savings deposits with the ordinary savings banks and the Postal Sav
ings System in August':"Septemper 1939 and again in May-June 1940.'
However, these losses were soon regained and total-saVings deposits
reached a new high level by the end of 1940.
II. Developments Since the Collapse of France
1. of German Occupation
The occupation of Northern France by the German armies and the
declaration of an armistice on June 22, 1940, delivering a large par-:t
of France over to Germ:an occupation, naturally brought a per-iodof
great confusion in monetary and banking developments. The German 00
cupation authoritlesused their own currericy to meet their expenditures
on French territory and set up temporary banking offfces to issue'this
currency, as well as to conduct emergency banking operations. Bank
moratoria were declared, and the Bank of France itself moved its head
office first to Saumur, then toBordeaux,and,finally to Clermont
Ferrand 'in the unoccupied zone; however, it left part of its organiza
tion in Paris, operating' as .the "Paris Branch". On July 8, 1940, the
Commandei' of the in France appointed a commissioner for the
Bank of France (Dr. Carl Schaeffer, a German bE\D.ker) ,and by a similar
decree of July 22, 1940, Dr. Schaeffer waS appointed as head of a.bank
fng'.GQI1trol office supervising through special commissioners all bank
ing esCtablishrnents 'in France. These commissioners were givensweepirig
powers to control banking operations.
Immediately after the invasion, a decree of the German Military
Commander gave legal tender status in occupied territory to the special
German occupation currency and to ordinary German subsidiary currency.
The German occupation currency in the form of notes and coins was issued
by the so-called Reichskreditkassen, local offices in the bccupied
territory of the Reichskreditkasse in Berlin, a,special age:p.cy estab
lished in May,1940 under the administration of the Reichsbank.This
currency, denominated in Relchsmark, was valid only in the occupied
territory and could not be exported to Germany. It repres'ented merely .
a claim on the issuing institution, secured by that institution's
corresponding claim on the German Government. The decree it
legal terider'status established the exchange rate of 20 French francs
equals one Reichsmark. This rate cOnstituted a very considerable over
valuation of the Relchsmarkj the pre-:-occupation official parity (most
actuaJ. transactions were at a discount from this rate) 'was 17.85 francs
Re.ichsmark, and even this rate is believed to have overvalued
the German currency on the basis of its purchasing power. The
issuance of occupation currency was only a temporary devt"ce, however,
pending arrangements coneJ..uded in August 1940 (see below), whereby
the occupation au.thorities obtfi,ined access to supplies of the local
currency in the form of a tribute (occupation costs) paid by the
French Government. Provision was made for the redein.ptlonof this
- 1,82
currency by the Bank of France and' it was rapidly retired from circu
lation; the Bank reported that it hadreceived an amount equivalent to
12 billion francs by December 26, 194o, by' which time it is like,ly that
few remained in circylation. lj
Another feature of the German occupation procedure was their dras
ttc measures for controlling goldand foreign currencies and securities
which fell under their control. 'The exportation of such valuables was
at once forbidden ...;. even from occupied to unoccupied. France' - as was
any disposition of themwfthin France. The exchange control agency of
the military authorities, the,Devisenschutzcommando, ordered all banks
,and credit agencies in Paris and the Department of the Seine to submit
a complete statement of all foreign assets and valuables in their pos
session, including Reichsmarkbank notes. All safe deposit boxes of
customers were ordered to be closed and could be opened only in the
presence of a German representative Little is known, however:, of how
much was eventually requisitioned or confiscated by the German authori
ties; aside from enemy and Jewish property.
2. German Financial Exploitation
Most of the emergency measures taken in the outset by the German
occupation authorities and summarized in the precedi;tg section were
only ofa temporary nature. Even the control of the Bank of France and
other banks by German,comrnissioners was discontinued' in June 1941, wh,en
the Vichy Government set up its. own bank supervision machinery _X
~ ' In August 1940, however, arrangements ofa permanent character
were established whereby Frency financial resources were mobilized to
serve German interests. These arrangements took the .. form. of an agree
ment with the Vichy Government for the payment of occupation cpsts and
a clearing agreement for commercial transactions.
The huge levies made upon France for occupation costs are the root
of the whole financial evolution of France since the armistice. The
basic occupation costs were initially fixed at the level of/20miUion
Reichsmark (400 million francs) per day, dating retroactiveiy from June
22, 194o. On May 10, .1941, the daily tribute was reduced ,to 15 million
. Reichsmark (300 million francs), and on about NoveIiiber 11,;"1942--:With
y The exact accounting procedure of this redemption is not. known; it is
believed, however, that the Bank of France retired the occupation notes,
either (a) for the account of the Statte, which in turn could count such
disbursements as part of itspayments.:on occupation.costs, or (b) . for
the account of the Reichskreditkasse, which drew for this purpose upon
the amounts placed to its credit at the Bank of France by the French
Government as occupation costs. In either case, redemption of the oc
cupation currency would not have laid a further burden onhance in
addition to the occupation costs.
The notes retain their legal tender value in France although this status
was withdrawn from German coins in March 1943.
- 183
the occupation of the whole of Franc.e by the German forces--within
creas.ed once more. to 25 million Reichsmark (500 million francs).y In'
addition to the basip .occupation costs,the French Governnient had to
meet certain other expenses of the occupation forces (billeting of
troops, etc.); the precise amount of these expenditures, is not known,
puttl1ey arebelieved<to have run around 30 million francs a day With
a tendency to increase in 'laterj?eriod.
The annual rate of the basic occupation costs varied from 110 to
180 billion francs. For purposes of comparison, the entire French
budget expenditures in 1938 arrfounted to only 75 billion francs. Pay;..
mants on 'such a scale were obviously far beyond the resources of the
French Treasury, and under it had no but
to borrow the bulk .ofthe necesB.ary funds' from the Bank of Fr?-nce. An
agreement was concluded with the Bankofl August 25, 1940, whereby the
:Bank agreed to advance free of interest up to 50 ,billion francs to the
Gov6rnment to serve this specific purpos'e .2/ The amount otthe author
ized advances under this heading has been Increased from time to time
until in June 1943 the limit was raised to 291 billion francs. The
amountactuaJJ..y advance by the Bank of France for occupation costs by
July_l, 1943, was 261 billion francs, representing nearly two-thirds
of the basic occupation costs paid by the French Government up to that
date.
under the Hague Convention an occupying power is entitled
to levy occupation costs under specified conditions, these are only
permitted to be demanded for the purpose of covering the actual
for the troops stationed in the occupied. area. Obviously the .amounts
extracted by the Germani :authorities have exceeded this limit. ,The
-Germans are reported to have' used the occupation tribute not only for
1hi1itary expenditures not covered by the Hague Convention (e.g., the
building of fortifications, purchases of war supplies for shipment
abroad, etc.), but for such illicitpurposes as the purchase ofsecu
ritles in strategic industZ:ies, etc. Despite this free use of the oc
funds, until 1942 the Germans were unable' to spendthemas .
fast as they 'accrued. The undrawn balances were accumula-yed in a
special account maintained with the Bank of France for the Adminis
tration Centrale des Relchkreditkassen. -During.1942-43,ho'WEtver,
YThere is some doubt about the exact date of the increase to 500
million francs per. day, but if the agreement conc'erning this
change' Was .somewhat delayed, it Islikely that the higher costs were
levied with effect retroactively to November 11, 1942. Some reports
indi_cate that occupat;1.on payments have alao been made. to ltaly,at
the rate of 35 million francs a day since December 1942. ,The evidence
is so '11inited, however, tha-t no account has 'been taken in the fo1
lovins! of a possible additional tribute :to Italy. .
y The':Bank receives a service of 3 per
1
m1l1e._:
- 184
. in France have risen. markedly and the German author
succeeded in disbursing not only the amount of occupation
costs received, but also dumB drawn down from their balance
with the' B8nk of France,. This balance had .risen progress,ivelyto 64.6
on Decem.b,er 31, 1941,but by. January '28,1943, had fallen
to only 9.1 billion francs. Since that time it h,as remained remarkably
stable, amounting to 14.9 billion on July 1, 1943; apparently sinc.e
. January the Ger.manshave been liVing within their means :although it is
always possible that some of their expenditures formerly financed by oc
cupation costs are now being met otherwise; e.g., through the clearing.
It should be noted that the depreciation of the purchasing powe! of the
franc' for which the inflationary financing of these occupation payments
has been largely responsible, has reduced the. real value of thetr1bute.
This factor alone may account for much of the rise in German expendi- .
tures; it has also been reported that German requirements for labor and
materials in connection with fortifications in France expanded rapidly
1942-43.
The following table shows as of quarterly dates the cumulative
amount of the basic occupation costs, the amount financed by the .Bank of
France, the unspent balance accumulated by'the'German authorities, and
the' indicated annual rate of German eXpenditures in quarter.
Occupation Costs - France
(In billions of French francs)
Approximate quarterLy
date !/
Cumulative
basic
occupation
Occupation of Annual rate
advances by'Relchskredit- of German ex
Bank of kasse at Bank penditure in
costs / France of France preceding
'quarter 2/
1940
-
October 3 41.6 46.0
37.9 129.9
December 26
75.2 72.3 41.4 130.8.
1941 - April
3
114.4
99.2 55. 2 94.6
July
3
145.4 117.5 59.. 5
,.
107.1
October 2
126'.6 61.7 100.7
December
31 19907 142.5 64.6
97.7
1942
_. April
2
227.3 159.3 57.9
136.1
July 2
October 1.
254.6
281.9
.'
178.1
186.9
48.8
32.4
147.6
175.3
December 31 319.4 211.0 ,16.9 212.6
.1943 - April 1 364.9 235.7 10.7 207.4
July 1 410.4 261.0 14.9 167.7
Y Weekly report date of. Bank c;>fFrance nearest the end of quarter.
2/Calculated from basic occupation. cost paymentsadjustadfor changes in
- German balances at Bank of France; dQes notincll.lde special occupation
expenditures on billettlng etc., or German expenditures f1nancedthrough
the clearing .
.- 185
By comparison with these .mass i ve figUres, the amounts extracted
from France by Germany ill the form. of unpaid clearing b.alances are
'relatiyely insignificant; yet they are very substantial figures when
measured by any other standard,. The meclmics of the Franco-Ge:r,nan
clearing are not known in detail, but it appears that the clearing
agencies are the Deutsche Verr-eclinungskasse (a subsidiary of the
Reichsbank in Berlin), and a:rloffice in the French Treasury. The
French are required.to clear through the Verrechnungskasse not only
commercial transactions with Germany itself, but also with other
European countries including Belgium and the Netherlands. Since
GermanY has imported as much as poss iblefrom France,while export
ing to France only such golds as .served German interests there (e.g.,
raw materials forfirm.sworking on German orders)merchandiae trade
transactions between France and this clearing area have been "in
favor" of France. The remittances of French workers in Germany to
their homeland have also given France a substantial clearing credit.
Therefore the French clearing agency .has' accumulated very substantial
claims on Germany; from various reports concerning the size of these
claims, it maybe roughly ,estimated that they amounted to the eqUi
valent of20 billion francs. by the end of 1941, over 50 by the
end of 1942, and probably 75 billion by the middle of 1943. The French
clearing agency has been re.quiredof course to disburse the equivalent
amount in francs to French exporters and other persons in France with
claims eligible for clearing' (e.g." recipients of remittances).
It is not known how this expenditure is financed by the,French Treas
ury; the item does not appear in the budget for ordinary or extra
ordinary expenditures, but may be handled by some public credit
.,agency such as the Caisse des Depots et Cons ignations
The significance of German financial exploitation in the general
Frenoh budget plcture may be briefly illustrated During 194143,
ordinary expenditures were roughly balanced by revenues at
around, J,.OObillion francs each year (rt::1venuesin 1941, however, were
only 80 billion francs). Thd follo'Wlngtableshows rough estimates 'of
the expenditures which have bad to hemet by borrowing:
First half
1941 1942 :b943
Extraordinary budgetary expenditure
German tation
1/
4
5
35
10
Basic occupation costs 120 120 90
Other occupation 10 10
5
Cle.aring advances 20
..22.
20
Total 150 165 115""
. Total borrowing
195
200 125
-
Of which: from the Bank. of France 75 '
70 50
from other sources 120 130 75
Including deficit of 20 billion on ordinary budget.
- 186
It is apparent from the foregotng figul:'es that nearly the entire
burden 'of the French fiscal deficitisattributable GO the payment's
exacted in various forms by the German authorities. Nearly balf of
these payments have been covered by loansf:r'omthe Bank of France; the
remaining borrowing has been done very. largely at short-term. from banks
and public credit instItutions. A new "departure!OCCllrred, iIl May 1943,
however, when the Treasury issued a 10 billJ.onfranC.Long-term. (30
years) loan for the express purpOse of financing occupation costs;
another such loan for the sameamount was offered in August. y
j Bank of' France
The operations of the Bank of Frap.ce and the development of its
balance sheetdurl.ng the occupation period 'may be characterized very
briefly: the Bank has simply become a tool of the Sta"te for pouring
out funds to meet German demands for occupation costs. <
The side of the balance sheet is completely dominated by
advances to the Government for occupation payments and other purposes .
. Therel:Jorted: gold reaerves have remained unchanged throughout the
period at 84:6 billion francs desplte the fact that virtually all of.
these lie outside the Bank's control. Its "normal" loans (bills dis
counted ,and loans on securities) have.fluctuated between 15 and 20
billion francs, a level prevailing in the first montheof 1940. gj
These loans at present consist almost exclusIvely, however, of
Treasury paper or loans for the benefit of the State (loans against
Treasury paper or discounts of hills of the Caisse des Marches d'Etat,
the Credit National,etc.); In view of the general banking liquidity,
the Bank has scarcely been called upon to supply' credit to trade and
commerce or to the money market.
Direct "temporary" loans to the Treaaury aremade under two
authorities: loans 'for war expenditures, . the limit for which was
raised 'to 70 billionfrancsbythe convention of June 9, 1940;' and
loans for occupation cos,ts, the limitfor which has beeninyreased
successively to 291 billion francs in June 1943. Loans in the fqrmer
cat,egory, which amounted to 36.3 billion francs on June 10, 1940, and
69.3billion on September 2601' that year, subsequently moved rathE)r
narrowly between 60 and 70 billion francs until 1943, when they have
tended downward toward 50 billion francs. In effect, they now. appear
to be "general purpose" loans; on some occ8.siomf,when loans for oc,..
cupation costs have reached the authorized ceiling, the Treasury has
drawn on this account pending a fresh ,increase in the ceiling, ana
thereby in effect obtained the means for meeting occupation
1/ It tsnot known how much oftheae loans was absorbed directly by the
- public; it reported that 30 per cent of the May issue was -taken by
the . Caisse Depots 'etConaignationa
Y This level was surpassed, however, from the time of the crisis in Nay
1940 until the fall of that'yea:r.
- 187
- In such cases, however, the increase in the ceiling on occupation cost
loans has generally been followed by drafts on the occupation account
and corresponding reimbursemeJ?-t of the "general purpose" loans.
The course of the loans for occupation costs have been traced in
the previous section. By June 10, 1943, these advances plus the other
"temporary" advances to the State forgenera.l purposes constituted some
two-thirds of: the total assets of the Bank. The remaining third was
almost evenly divided between the gold reserve and other-assets
sisting a.lmost entirely of direct and indirect claims on the State.
The changes on'the liability side of the Bank's balance sheet may
be described equally simply. The credit expansion by the Bank has
taken the f-orm. of' increased deposits and note circulation. Government.
deposits have been negligible throughout the occupation period and other
deposits, aside from those accumulated by the Reichskreditkasse, have
been f'airly stable) fluctuating between 25 and 35 billion francs.' The
elastic elements among the Bank'S liabilities have been the Reichf;Jkredi t
,kasse, deposits and the note circulation In the period through the end
of 1941, the former expanded rapidly; thereby insulating from". the French
economy the effects -of the Bank's credit expansion; in 1942-43 they have
been drawn down again and have fed the monetary inflation in France.
From June 10, 1940 to December 31, 1941,the increase of 176 billion
francs in the Bank's advances to the State (both categories) was nearly
matched by the increase in note circuiation (96 billion) plus the in-'
. crease-in German d,eposits (65 billion) In the -period of C:i.pprox:1mately
e.qual length from begfnning of 1942 to June 10, 1943, the increase,
of 103 billion francs in to tne State plus the decline of 5,fJ
billion in German deposits has been approximately matched by a growth
of 157 billion francs in the note circulation. Thus in the second
period, despite the success Of the Vichy Government in covering
its -requirements outside the .Bank of France, the increased rate of Ger
:mari expenditure spurred the rise in note circulation. By -June 10', 1943,
the latter quantity was nearly two and one-half times the figure for
June 10, 1940, and three. arid one-half times the level for the summer of
1939.
Mention should be- made of the fact that in March 1941 the Bank. re
duced its. discount rate from 2 to per' cent; however, this move was
of little practical significance. The table on the following page shows
the leading assets and liabilities of the:Bank for selected dates in
1940-43. .
CoiI:ge
Information on changes-ill-French during the occupation period
is very fragmentary except that the 25,5,2 and 1 centime nickel-bronZe
prices were withdra-m early inl941. New co,"ns of. aluminum
were ordered 'to be issued early in the year '1943. Tbere have
reports that the Germans were "interested in scarce war
metals ( copper Dickel, etc.) from _French coinS .
- 188
Changes in Bank's organization
In November 194o, the Vichy Government <lecr!ged a number of changes'
in the statutes of the Bank of France, affecting its internal
organization including the composition of the General Council. The Gov
ernor and Vice-Governors be appointed by the Government, but
the number 0f Councillors was reduced frbm20 to 11. The 9 representa
tives of special economic groups (Group II on the old l1asis) as well as
3 ex-officio members were eliminated, while one more member was to be
named.bythe shareholders and directly by the Government, respectively.
the permanent committee of the Council, which was
izedunder the old statutes. to exercise delegated power, was abolished
-and the Council wasre<lulred to mee"t at least once a week. A change
was also made in the sauditors jinstead of 3 named by the share
holders, there are now fOUl", named half by the shareholders and balfby
the Government. Finallyproyisions relating to the discount council
and-.comm.:tttee were somewhat altered. The following tabulation shows
the. new constitution of the General ,Council and auditors:
- 189
Bank of France
(In billions of francs)
Balance sheet'items
Assets
Gold reserve
Bills discounted
Bills,bpught (open market)
Collateral loans
.Government securities and permanent
loans to Government.
"Stabilization" 1oana to Government
Loans to Government for occupation
costs
Other assets
Total assets
Liabilities
Note circulation
Deposits: Treasury
Relchskreditkasse
Other
Other liabilities
Total liabilities
!/
Figure ,not 'available
June 10
84.6
11.9
8.8
6.4
45.4
36.3
10.4
203.8
174.5
1.0
25.4
2.9
203.8
1940
Aug. 1
84.6

5.9
45.4
57.7
--11
y
197.0
1.1
30.8
-2L
11
Dec. 26
84.6
3.6
7.8
4.7
45.5
63
72.3
9.2
291.6
218.4
1.0
41.4
27.2
3.6
,291.6
' 1941
June 31
84.6

4.2
45.4
65.1
117.9
1/
!/
236.4
11'2
58,.8
33.6
1/
!/
84.6
4.5
6.8
3.9
45.3
69.5
142.5
8.3'

270.1
1.5
64.6
25.3
3.9
365.4
1942 1943
June 25 Dec. 31 June 10
84.6 84.6 84.6
4.0 4.0 6.2
7.5 8.4 9.1
3.1 3.6 3.9
45.2
' 45.2
45.2
63.0 68.3 54.6
174.9 211.0 260.8
6.4 8.3 11.1
388.7 434.8 471.9
304.4 382.8 426.9
.8 .8 .7
48.1 16.9 8.5
30.7 29.9 31.4
. 4.7 4.4 4.4
388.7 434.8 471.9
- 190
General Council of the Bank of France
Title
Governor'
First Vice-Governor
Second Vice-Governor
Councillors - 11 in all:
Group I - 3
Group II - 4
Group III ... 3
Group IV .- 1
Auditors - 4 in all:
2
2
(:November 1940)
Method of selection or appointment
. Appointed by decree .
"
11
Ministerial order
11 11
" "
Elected by general meeting of share
holders from a list of candidates
approved by the General Council.
Chosen by Secretary of State for
.Finance from representa.tives of
trade, industry and agriculture.
Two of the four must be repre
sentatives of agriculture.
Ex-officio members, viz: the General
Manager of the Cais.se. des Depots
et Consignations; the Governor of
the Credit Foncier de France; the
General Manager of the Crediy
. National.
Selected by Secretary of State for
Finance from personnel of Bank,
active or retired} from three
names submitted by GoYernor.
Elected by the general meeting of
shareholders. from a list of cand1
d8.tes approved by the board of
auditors.
Cho.sen .;by the Secretary of State for
F1.Iul;nce f:r,-om aID.QngTreasury officials
ba.v1ng at least the rank of diredtor.
- 191
On September 1, 1940, the Governor of the Bank, Pierre FQurnierj
resigned in favor of the First Vice-Governor, Yves Breart de Boisanger.
The latter's position was in turn filled by Rene Villard, formerly
Vice-Governor of the Credit Foncier. The Second Vice-Governor of the
Bank at that was Henri de Bletterie, Controller-General of the Bank
before his appointment early in 1940 as successor to Jacques Rueff. No
report has been received of any subsequent changes :in these officials.
Although a large part of the Bank's staff and services were moved
back to Paris after the initial confusion iri the summer of 1940, the
Bank's head office continues to be situated in Clermont Ferrand. The
Bank's general functions have remained largely unaltered, except that
by law of August 30, 1940, administration of the Office des Changes
(foreign. exchange control) was transferred from the B8nk to the State
Secretary of Finance. From December 1, 1940, the office became a pub
lic establishment taking over the functions of the Compensation Office.
The combined organization is now by a committee including 4
high Treasury officials and a representative of the Governor of the Bank
of France; an executive is appointed bythe Secretary of Finance.
4. . The French Inflation
It has been shown above that the note circulation in Franceexpanded
bysome 300 billion francs,or three and one;..halftimes, from the middle
of 1939 to the middle of 1943. This fact dominates the present
situation, although it will also be demonstrated in the following
tions that bank deposits with institutions in 'the "private sector"have
increased bysome 125 billion francs, or two times,during
the same period, while deposits with public savings institutions have
risen by 40 billion francs, or two-thirds. This accumulation ofpurchas
ing power in the hands of the public, largely as a :result of the deficit
financing necessitated by the German tribute, haS put great pressure upon
the French price level, especially since it haa been accompanied by a
serious decline in the supply of consumable goods.
The French authorities have taken a series of measures a1:medat
limitins and controlling this pressure. There have been a whole range
of decrees instituting price control and rationing, representing an
attempt to regiment consumer purchases and thereby to preserve the value
of that proportion of consumers' income which is allowed to be spent.
The Frenchadministrative structUre has been unable to support this
weight, however, and traffickingin the "black markets" became very
widespread. A more basic approach has been the attempt. to immobilize
consmner purchasing power by selling gov.ernmentsecurities to the pUb
lic,but this program has met withacarcely greater success. The
Treasury has had to obtain the bulk .of its funds at short-term from
the bankS, including of course the BanlcofFrance. At a. last resort,
a number of measures ha.ve been taken in the purely monetary field, al
though with little tangiblereault. .
- 192
Evidence concerning depreciation of the franc
Before describing some of these measures in more detail, it may be
useful to present certain evidence concerning the depreciation in the
value of the franc during the war period. This tendency may be illus
trated py the following figures showing indexes of wholesale prices and
the cost of living in France'
Wholesale Prices Cost of living
1939 100 100
December 1939 128 III
June 1940
137 119
December 1940 162 130
June 1941
173
142
December 1941 196 150
June 1942 202 156
Fall 1942 210 164
These figures, based upon official prices of--for the most
part--rationed commodities, indicate that wholesale pri.ces had doubled
in June 1942 as compared with the immediate prewar period. The rise has
no doubt continued. The cost-of-ltving index had risen less rapidly,
presumab13 because rents and utility being more amenable to
control than commodity prices, had.advfiIlced slowly, if at all . On
the other hand, all these figures take no account of transactions in the
black markets, where prices range up to several times the official level)
depending upon the scarcity position of the particular commodity involved. '
Furthermore, the black markets in 1ranceare simply ,a medium for
transactions in luxury goods by persons of considerable means; price con
trolis so poorlY.enforced and official rations for food, etc., are so
inadequate that a large proportion of normal household expenditures--at
least in urban areas--are reportedly made at black market prices.' In
formation concerning prices and turnover in the black markets is hot
sufficient, however, to permit the calculation of a weighted average :in
dex shOWing the general fall in the internal purchasing power/ of the franc.
Data concerning the external value of the franc give no more re
liable indication of the extent of its "true" depreciation. The official
exC?hange rates have been maintained unchanged since June 1940 at 44
francs to 'the dollar and 20 francs to the Reichsmark. The dollar_rate
has beenvirt"!lally inoperative since that time, except in so far as it
was adopted by the territories of the French Empire which came under the
control Of. the De GaU,lIe .commi.t.t.e.'.ein Lo.;ndon. 17 The BeiCl'lsmark. rat.e at
. first grossly undervalued the (see p. T, but the price inflation
1/ The rate is still maintained in those.terI'ito'ries" although in French
North and West Africa, now Under the controlo!" the French COmiIl.ittee
of National Liberation in Algiers, the exchange rate on the dollar,
after being fixed initially at 75 francs, is now 70.
-193
in France, together with the relative stability of the .controlled price
level in Germany, mayb.y this time have eliminated much or all of the
discrepancy .. This exchEmge rate, however, does not afford a basis for
independent judgment.
It has occasioned some surprise that the Germans have not de-'
valued the franc further in terms of Reichsmark . .'-that.they
have refrained from this step firstly because the measure wQuldpro
bably be it would stimulate,a freshri'se of
prices in France which would shortly undo theadjustment--andsecondly,
because it would be damaging 'to the prestige.of the general European
monetary structure set tip by Germany, in wh"ich "stabilit.y'' and "perm_
anence" have. been stressed. As noted preViously, the ratels signifi
cant in the determination of the-franc amount of occupationcosts,but
these can be adjusted to Ge!'m.an needs without changing the exchange
rate (cf. the increase in December 1942).
Furthermore, no useful guide to the present-day value of
is afforded by black market quotations for gold and foreign currencies
in France, or by the quotations for French bank note.s in foreign
kets. Foreign media of exchange command a huge premium in France,
partly because of fear of the depreciation of the franc, but also
partly because they prOVide a channel by which capital can'beexported
from the country. Even if the domestic value Of" the franc had
mained unchanged, a large premium would no doubt have"developed.
Similarly, the quotations for French bank notes in foreign markets are
affected by non-economic considerations, namely that such notes are
pressed on thE? market by persons desirmngto export their capital from
France and that the buyers of such notes take 'a considerable risk on
the the reimportation of the notes into France is
forbidden without authorization.
In exchange between France and SWitzerland, there ia an
official clearing rate of 10 French francs to the Swiss franc, corres
ponding approximately to the dollar parity of the two currencies. Until
November 1942, French franc balances in unoccupied France (Lyon) which
were not eligible for clearing were in Switzerland .ata slight
discountfromthe clearing rate, or at about 9.5 Swiss, francs per 100
French francs. With the German occupation of' all of France, this rate
fell sharply and qlIo"ba-t1QnJ;3 became nominal, presumably becaus-e fresh
restrictions on the disposition of the French franc funds were ex- .
. pected. '1/ After declining to 'a low point of aroUnd 2.5, the rate has
again imProved during 1943, reaching 4,,63 at the end of May. The quQ.
tations were made on a very narrow restricted market, and although
,....
J-/
In December 1942, the French Government announced that it could no
.longer pay the interest on .its bonds issued and held in SWitzerland
and steps may also have been taken to restrict the transfer to
Switzerland o-r franc. balances.
- 194 -'
they seem to have some effect upon public sentiment in France and else
where, they should. not be as a reliable :measure of the "true"
value of the French franc.
The circuit".
From the point of view of fiscal policy,the most effective anti
inflationary program. in France would have been to obsorbby taxation
a.nd by borrowing f:r;-om the public the huge sums expended by the occup
tion authorities. It has been pointed out above, however,' that the
French Gov.ernment, while borrowing from the public on a long-term basis
has been accomplished only on a minor scale. A theory already expound:ed
in France in the thirties has been by Vichy who
have contendedth.at inflationcould'be combatted successfully if the
in9reas.e in the purchasing power held by the public took the-form of bank
deposits rather than currency. They conceived that a "closed"m.onetary
circuit" might be developed. in the framework of which the Government
could finance its requirements as follows: the Treasury would'borrow
an initial amount from the Bank of' France and disburse this sum. to'the
public; the public would be induced to Qeposit these funds in banking
institutions;' and the banks', for lack of any other investment, would
place the funds' in new of Treasury securities. In short, .money
would flow in a: closed c:i:rcuit, from the Governm,ent to the public,
then to the banks) 'and then back to the Government, the only net result
being increased Governm.ent debt to the banks and increased deposit obli
gations by the banks to the public. The merit of this plan was seen to
be in its avoidance of an increase in the note circulation, which has
traditionally been regarded in France as the measure of inflationary
development.
A fuller analysis of inflationary trends would take into considera
tion the expansion of bank deposits, as well as of note circulation.
However,if such a "closed monetary circuit" could have been developed
and if the expansion in the note circulation could thereby have been
restricted, the public 1 s faith in ,the 'currency might have bee,tlbetter
maintained and thereby some part of the actual inflation might have been
avoided. In any case, .however,the "closed monetary circui",?" developed
a at an early point. T.he funn.a expended by the Government were
not all in banking institutions, but were to avery consider
extent withheld by the public in the form. of bank: notes. Further
more, before they lodged in the hands of their final.holders, they were
often used in intermediate transactions in the course of which they
served to bid up i.e., to reduce price inflation. Yet in French
eyes, 'it was apparently the mere increase in the note circulation which
marked -the fa.flure of the system.
, .
The hoarding of bank notes is not in itself inflationary and the
immediate effect may indeed be deflationary if there is some ,positive
. reason for.persons to hoara. rather than tospend'theirincome in the
market. Indeed, in France a large part of .the hoarding -,nay be attrib.
utable to general.. uncertainty concerning future developments, making .
- 195.
persons abstain from consumption and build up liquid resources in order
to' be prepared for any eventuality. Note hoarding 'has also b.een en
couraged by the that the agricUltural'population in France has re
ceived an increasing share of the national income during the war period;
peasants have only limited experience in the use of bank facilities and
in effect have simply been making an interest-free loan to the Govern
ment through the Bank of France. Fina1.ly, the increased note circulation
has undoubtedly been due in part to the extensive use of currency in the
black markets, where dealings are conducted entirely in cash in order to
avoid leaving incriminating evidence.
Monetary measures
The preoccupation. of the French authorities with the volume of note
circulation as an index of inflation led to the issuance ofa number of
decrees aimed at reducing the volume of currency transactions, especially
by encouraging or enforcing the use of checks and payment ord,ers. It was
hoped that these to the extent that they actually caused econ
omies in the use of. bank notes,would have some psychological in
allaying the public's fears for the future of the currency.
As early as March 3, 1940, a decree of the President of the Republic
ordered that by the State and the departments in excess of
certain amounts had to be made by transfers '( virements) to accounts with
a bank or with the Office of Postal Checks. The maximum figure for cur
rency payments was fixed at only 3,000 francs in purchases of supplies
or transport services, and at 6,000 francs per month in paying
and wages of public, employees or any work done for public bodies.
2 While the aim of this decree only to economize in the use of
currency, the Vichy Government combined the same idea with the aim of
postponing at least part of the State' s liabilities. A law of October
22, 1940, provided that thenceforth the State, departments,
or any public body were empowered to pay part of the amounts due for
supplies and public 'Works :tn bills drawn on the Credit National, ma
turing w.i thin six months. A decree of the same date rult?d t:h.at one
half of any payment for supplies in excess of 20,000 francs and of any
payment for public wo.rks of more than 50, 000 francs could be made in
bills. The interest rate of the bills was originally 2.75 per centr in
February 1941 it was ,reduced to 2.5.per cent and in March of the same
yea.r to 2.25 per cent. On the other hand, a decree of S'eptember 21,
1941;changed their maturity to nine and raised the proportion
of payments which' could be made in bills to 75 per cent Moreover, by
a decis,1on .of the :Professional Corrmiittee for bank:tngorganizations (see
next section) ,slich bills have been made discountable with 'co:m:ri1ercial
banks at a rate which cannot the interest rate wbichthey carry.
In practice, the bills can be cashed by holders at their issue value
at any bank, since the discounting bank is fully-protected by the'
readiness of the:Bank of France at all times to rediscount these bills.
In eff$ct, through this procedure, the banks have financed a large
portion of payments disbursed by public bodies.
- 196
Another +aw of October 22, 1940, generalized the rule of non-cash
payments by decreeing that all payments exceeding 3,000 francs in
respect of salaries, wages, rents, transport, supplies, or services had
to be made either by' check or by transfer to an account with a bank or
with the Office of Postal Checks. A law of February 3, 1943, raised
the maximum for cash payments from :3,000 to 5, 000 francs, but on the
other hand, any payments resulting from real estate transactions or the
service of registered securities must now be made by check or bank
transfer if they are over, this limit. !/
A serious difficulty arose from the application of these laws:
when a trader is obliged to insist on receiving checks from. his,cus
tomers, even casual ones, for any exceeding 3,000 (or at present
5,000) francs, he runs the danger of being paid w-ith bad checks. To
provide a means for avoiding this difficulty, the law of February 28,
1941, provided ,that any banker must certify a check drawn on him when
the drawer has a corresponding balance; the balance must then be blocked
for the benefit of the holder of the check. Consequently, any creditor
may require payment in a certified '
Among other devices aimed at stimulating the use of checks, the
stamp duty on checks (50 centimes) 'has been abolished and the income
tax on interest from bank: deposits has been reduced.
Control of speculation
. The best indication of the losssof 'confidence in the franc by a
large part of the French population is provided- by the ardent s,earch
for "real", concrete values, as distinguished from money claims. As
quantity of commodities can be bought and stored is extremely
limited, such things as paintings, rare books, postage stamps, etc.,
have come to command extraordinary prices. Real estate of course also
stands high on the list of'realvalues but transactions in real estate
are few 'and complicated; moreover they call1lot escape official investi
gation. Much of the inflationary fever has found an outlet in specula
tion in securities, foreign securities where possible, but otherwise
. equities in industrial corporations representing ownership of land,
equipment, and physicai stocks. gf '
The rise in stock exchange quotations, which has taken place in
spite of nqmerous restrictive measures described below, may be illus
trated from the movement of the index for 300 leading shares with the
The 3,000 franc limit theoretically made 5,000 franc bank notes
usable only for hoarding purposes
. g/
Alongside the demands originating from French investors, it is
likely that German purchases have also hada hand in the spec
tacular demand for shares'.
- 197
average prices for 1938 equal to 100. By May 1940 this index had reached
nearly 130. F:r>om June 1940 to March 1941 the Paris Bourse was closed to share
trading, but transactions continued in Lyons and in black markets at sharply
rising prices. When the Bourse reopened on March 19, 1941 the index was
over 250 or about double the pre-occupation figure. The advance progressed
_rapidly, the index reaching 350 in December 1941, 450 in June 1942, 'and 590
in December 1942. Fragmentary evidence for 1943, howeyer, indicates that a
reaction has occurred. A peak (844) was reached in January, following
a slump brought the index to 549 at the end of March. Later information is
available ,concerning an index ,of 60 leading shares (the prices of March 19,
1941 :100) which after reaching 200 in January 1943, fell to 158.5 in June
of that year. The index of 300 shares based on the first six months of
1939 was probably below 500 by mid-year. It is believed that the principal
reason for this reaction--paradoxically-'-was the more hopeful outlook for
the future based upon military developments; it was also reportedly encour
aged by the recovery in quotations for the French franc in Switzerland be
ginning in February 1943
As an indication of the extreme character of this share speculation, it
may be noted that by the middle of 1941 the average dividend yield can hardly
have exceeded 1 pet' cent. '
While the restrictions impos-ed upon 'the exchanges did not succeed in pre
venting a drastic rise in stock prices, they did have the effect of drying up
Volume. Indeed, trading activity dried up so completely as the result of cer
tainmeasures to be described that ever since the reopening of the ,Paris
Bourse in March 1941, it has been little more than a' quotations bureau, show
ing unsatisfied bids and no offers. For a time after the opening of the Paris
the real activity in stocks continued to take place in black markets
at prices materially above the published official quotations. But, as"
restrictions became more and more drastic and reached out further and further
into the unregulated areas, it is doubtful if even the black market found it
possible to function on any large
The restrictions on share speculation to which allusion has been made
above rose from the understandable concern of the Vichy authorities that the
stock exchange boom would undermine the public's faith in the ,'currency. By
a series of repressive measures they have sought to check the rise ,iIi Bourse
quotations and then to force all securities transactions through the Bourse
or at least through channels subject to official scrutiny . Measures of the
first type are discussed in the following paragraphs,while changesfnthe
organization of the securities business are reserved for the section of the
stock exchange
Y By comparison with the inflationary boom in the early ttwenties in France,
present speculative movement in equity securities is much moreob
viously a mere flighti'rom the currency with small conaideration for the
earnings outlook for French companies. On the- other hand, while in the
'twenties interest rates rose and the prices of government and other bonds
fell, the opposite is true in the current situation. Rising bond prices--'
as the hoarding of currenoy--are an economic paradox ina period of serious
inflation, but ,are explainable 'by the superabundance of liquid. funds and
the extreme scarcity of investment media. '
- 198
. From the very first, heavy reliance was placed upon the direct
, limitatior1of price changes on the bourses.. For the first few weeks
after the Paris markets opened in March 1941, daily price rises in
quoted shares were limited on the exchange to 5 per cent. After a
few weeks" the restriction was tightened so that no more than a 3 per
cent rise. was allowed for any three day period; however, once a share
had risen the 3 per cent maximum, its price was frozen for a period
of five days. In addition, whenever a share rose in price by 15 per
cent or more wi thin a short t1in.e, special limitatiGllS of an even more
drastic character were imposed. Later still, daily price changes were
limited to 1 per cent.
Another method Whereby price changes were sometimes limited was
by forbidding any sale until the offers at a given price were at least
one-fourth as great as the bids, at which. time buyers were allotted
shares on a 25 per cent basis. To keep the rationing of orders on an
equitable basis, brokers. were orders or to breakup
an order into several of smaller size.
As an added effort to discourage share speculation, a capital
tax was imposed by a law of March 15, 1941, upon sellers of shares
. or of bonds denominated in foreign currency). The capital gain was
defined as the excess of the sale price over the purchase price or over
the average price in the three months ending MarchI, 1941, whichever
was higher. F-ive per cent of the "gain" was exempt from taxation, but
the remaining 95 per cent became subject to a' tax of 33-1/3 per cent.
Almost as soon as the new decree went into effect, the French
authorities apparently recognized it to be a serious blunder; since
the tax was applicable only in the event of sale,it deterred holders
from selling and smply aggravated the scarcity of offers . Accordingly,
, in the succeeding months, the provisions of the tax were progressively
relaxed.+:n July 1941, the 33-1/3 per cent rate was per
cent while the 5 per cent exemption was eliminated; sales of stock ac
quiredthrough inhE'r1tance orin a primary distribution werE} exempted,;
and shares held over one yea:r were likewise exempted. Finally,. in
March 1942, the scope of the tax was narrowed still by ac
cording,an exemption to all sales of shares held over three months.
A decree of December 1941 gave the State Secretary of National
Economy and Finance the power to altar taxes inTolved
in bourse operations. This power was promPtly by the 'Minister
who raised the tax on buyers from 1.1 to5 francs per 1,000 but left the
tax unchanged at 1.1 francs. There is some evidence that the
transfer tax was reduced in later months and that, still 'more recently,
it had, been raised again but information on this poirJ,t is incon;tt>letEi).
. .
Finally, in Mar.ch 1941, prior to the reopeniDgof the Paris .'.ogrse,
-.a deer.ea was promulgate4 to limit dividend. d1str1bl.ltl9n@. It.Q
, purpose was to redllC$ t,he.a-t;,tractiveness of sharesI. although bytbat
'time securitieswere being sought for. their "int.r1.s1c" valu.e rathe:r
- 199
than their current income. In principle, ,the decree limited the total
sum' to be dtstributed to shareholders in any year to the maximum. dis
tributed in any of the three prior to January 1940, how
ever, 'companies which had paid no dividends--oronly small dividend.s-
duriilg the baae years were perinitted to distribute an amoimt equal to
6 per cent of their paid-in capital in the base year plus 8 per cent
of capital subsequently paid in. !/
The original law did not prescribe any rule concerning the use of
the undistributed profits, but a law of October 24,1942 authorized the
State Secretary of Finance to prescribe rules for their investment. In
January 1943 he ruled that they must be deposited on blocked account
either with the Treasury directly or with a bank which would lend them
to the Treasury. The rate of interest on such deposits was fixed at
2-1/4 per cent. (They may be "deblocked" for purchase-sof ,machinery or
materials. According to press reports,the amount of these blocked
.deposits was .8.5 ,bJll+onf;ra,nqf:!.Jn May 1943, a large part of which was
apparently held
,5 General Banking LegiSlation
Until 1941, France was one of the few European countries where
banking was not regulated by special law or subjected to State super
vision. The Vichy administration deemed it necessary to fill this gap,
which it accomplished by two laws dated June 13 and June 14, 1941,'re
lating respectively to the banking profession proper, and to professions
connected with
Regulation and supervision of the banking profession
The law of June 13, ,1941, on the "regulation and the organization
of the bailking professton" 'aimed partly at satisfying the many demands
for legis1ation in order to "protect savingsu. 'But primarily, it was
passed merely as part of legislation introdu.cinga -"directed"
economy. The organization of French banking introduced by the law of,
June 13, 1941, is consequently analogous to the "corporative" organiza
tions introduced in the other branches of However,
the Vichy State Secretary for National Economy and FiJiance explained in'
a statement to a French paper, that "banking cannot be compared to other
professiollS; its operations are of too general Significance". Consequently,
the banking organization was subjected to closer goyernment. 'control than
the organizations of the other professions.
The fundamental principle laid down by this law is that thenceforth
banking business couid be only by enterprises registered :with
(i .e,.,licensedby) the Permanent Committee ',for Professional Organiza
tion (ComitePerm:anent d'Organiaation Professionnelle). g/Allsuch
restrictions were placed upon payments by companies to
their directors and managers. \
g/
A "bank" is defined in Articlel of the lay as: "any enterprise
accepting funds--as deposits or otherw1ee--and using them for its
awn account in discounts, credit operations, or financial operations".
- 200
enterprises were to be joined in a professional association, under the
con.trol of thisComm.1ttee. Only sucn enterprises may use tl1e appella
tion "bank", and they alone have the right toacoept demand deposits
and time' deposits of less than .two years' maturity.. TheCommittee
grants the reglstrationifcertain legal requirements are fulfilled 'and
if,in/itsjudgmen"t,theregistration is "justified by the general and
local economic needs
u
The Committee oonsequently far
reaching discretionary power.
The legal requirements fell under several headings. Banks are
obliged to have a minimum capitalization,. which was to be settled by
the State Secretary for National Economy and Finance. By a decree of
September 1941, the Minimum. was settled at 5 million francs for corpora
tions (societes anonymes) and 1 million for other banks. Thesefigures
are doubled for banks having more than two permanent 1?ranches. Further
more,no person may be established as a banker or act as director or
, manager of' a bank or a branch thereof from banking
activities by the law of June he is legally
incapable of holding public office _ g/ '
-
All banks must adopt the calendar year as their financial year.
They must, draw up an annual balance sheet and profit and loss account,
according t'oa'standard form, and during the finanoial year must pre
pare periodic statements, monthly for banks with deposits exceeding
. 500millioil francs at the year-end and qU8.1"terly for other banks. The
balanoe shee,ts and periodic statements must be published if the bank is
orgElIlized as a corporation. Banks not in corporate form must either
publish or put at the dispdsa.l of their customers their annualbalanoe
sheets and semi-annual statements.
The law does not specifically apply to public credit institutions,
but the State Secretary for National Economy and Finance is empowered
to extend the law; with the necessary modification, to these institu
tions. No such action on his part has been reported.
Foreign banks are subjected to the provisions of tlie law, and are.
on a spec:i.al list. Any bank is considered foreign which is
controlled, directly or indirectly, by foreigners or a foreIgn corpora
tion; it. Will be noted that this definition covers French subsidiaries
of foreign banks, even if inqorporated in,France. The law fails to de
fine what constitutes "control"; repsumably, this is to be decided in
each case by the Professional Committee.
The law provides for the establishment of two controlling bodies
entrusted with enforcing both it and the law of June 14 regarding pro
fessions connected with banking (see below) While one, the Pro
fessional Committee, is similar to analogous bodies established in the
y
The second disqualification excludes (with soma exceptions) Jews,
foreigners ,Frenchmen whose fathers were not of Fr!9nch citizenship..
- 201
1ndustri41brt1;D.qhes ve" basls, the .second, the
Control].ingC0m.to.1ss ion"iis a,particularfeature 'ofthisiaw. ..Bothboclies
are subject to the final authoJ:'ityofthe for Natto:nal
EconoIDYEind.Fin.a.n.ce. ,
Thei,Perm.a.nent CornmitteeofProfessional Organization includes up to
slxmembersjappointedby the State Secretary for National Economy and
Fi:ria:n:ca, froIii-'bankers or, directors com
.,by the
State Secretary,. It will be noticed that the State Secretary has wide
:rnakingthe appointments, not beingboun:d by
nomiIls:tibnsfrorn.the professional association of': banks. The State is
represe:rited' on the Committee by a Commfssioner who 'may :in some cases
veto itsdecisibns pendingaf'inal decision by the Controlling Commission
(see below) or by the State Secretary.
The primaryfunctioIl of'the Committe'e 1s to draw up the list of
licensed,banks; it bas already be'en indicated how sweeping are ita powers
... The 'Committee is also empowered to take. decisions of
a "general character" in the field of credit policy, governing such
matter-sas banking mergers, agreements on terms to cust.omers; establish
of' 11quidity, and the, regulation of com
Committee makes .a,"general" decision without pre
- viol.lslY: secUring, the advice oftheprofessibnal association concerned,
the decision must be submitted for: the approval of the State Secretary.
Moreover"tl1e.?ommittee iseIJipowered to "make all individual decisions,
such' as grimt;ing, or cancelling Iicenses n , " clos:Lng branches and merging
by general, or local needs"; etc., The Ij3.w,is
,very badly',dr8.fted, but the enumeration of "individual" measures appears
not,tob'erest:rictive, leaving a virtually un1:i.m.ited field of. authority
open t6theCo:rnin.ittee. The law provides for compensation to banks whose
branches are closed or whose license is cancelled nrorreasonsofecon
oinic order". This compensation is to be paid by the banks- profiting
fromsueh. decisions. The aim. of these rulings is eVident1:Y to reduce
the numbe:r of banks and banking offices.
SweepIng as are the powers of the Professional Connnittee. its de
cisions are' n.ot final, but must be referred to a Controlling, Commission.
The establishment of such a super-committee is a d1st1nctfve feature of
. the banking law. It renders .. the banking organi.zation still less
ficorpora.tive" than those :in industry ,or trade.
The Controlling Commission consists of three members: the governor
of the Bank of France--who is the president--a.high official of the
Treasury, and the 'president of the ProfessionalComrnitt,ee. Its task is
to attend to the fulfillment of the present and other laws and
tionsconcernlng banking., _It receives the bank's balance sheets',
periodic sta.tements, etc. ,and may -require from banks infer.ma,.tion
and justification needed' for the .. its task". AgainSt
any bank'infringing the- law, the 'CommIssion may impose all'&h. penalties
as: warning, blame, prohibition of certain or liinita
- 202
tions on the exercise of the profession" removal of managers" cancelling
of license" fine up to 10,,000 .francs.
At the end ot March 1942" 340 French -banks" of which 183 were estab
lished as companies" were registered with the PrDfessional Committee;
besides, there were 32 foreign banks. The.se figures represent a consider
able decline as Gompared to the numerous banks existing in France;before
the Foremerly" however, any brqker or dealer
in any kind of financiai 'transaction was able to call himself a banker.
Furthermore it must be kept in mind that t)le registration was conducted
. by a body which had practically to grant or refuse regis
tration. There may have been a number of refusals" and although requests
for registration had to be introdu,ced before October 15" 1941} it is
possible that in some cases no decision had yet been taken by March 31}
1942.
Regulation of.professions.corinected with banking
The definition of these "professions connected with banking" is given
by the banking law of June 13, 1941" but they are regulated by .a special
law dated the following day. They include all individuals or companies
which perform one of the following activities: (a) brokerage in securi
ties and bills" 1/ (b) credit operations on short and medium term or
'operations on foreign exchanges" (0) cashing" discounting} or lending
on,commercial bills}. checks" or public bills .
. Enterprises performing one of these activities "habitually" must
register with 'the Professional. Committee" but the list 'is not made public.
Besides" they must all belong to a special professional association under
the control of, the Committee. Enterprises performing one of these acti.
vities "incidentally" to other activities must also register wi.th the
Comm.lttee" but ,are not obliged to join.. the ,professional association.
:E::o.terprises performing one of these activities only "occasionally" do not
even need to register but must simply observe the regulationsc6hcerning
these activities.
The law does not apply to such activities as grantingIll,ortgage loans,
credit insurance} and installment credit. However" all enterprises.en
gaged in any one of these lines must declare this fact to the Professional
Committee.
Regular stock brokers (i.e.) members. of a Bourse) are not subject to
this law" but a special law of February 1942 reorganizing the Bourse
also assigned a role to the Controlling Commission for the bank;ing
and allied professions
... 203
, 6 DevelQpments in Commercial and
expans ion 'of ", depos its.
Thep,rogressive, increase in depos,its is the most conspicuous feature
in the evolution of French banking the" occupe:ttion,perlod.. The
accumulation'of:deposits can be judged from the folloWing table showing
the relevant figures for selectyd banks, together with data'ror:the'note----
circulation:
Deposits in Leading French Banks
(In billions of francs)
End of "
I--------,r-------......--:------r---........--r---...,..---",
Dec .. Dec. Dec. Dec. June
Banks
1942 1940 1942 1941 "1939 1938
targedeposit banks
-
,12 ..5 .16.2 Credit Lyormais 29.4 32.6 ,35.3
So.ciete Generale, .20.2 25.8
I'
I. 2,8.,4 30.3
National
d'Escompte
13.5
8.6 19.2
Credit Industriel
15.1 16.5
5.5 " " 6.6 2.8 2.2 4.9
4.6 6.0 14.2 16.5
Credit Commercial
9.6 B. N. C. I. 13.3
,'6.5' 666 2.8, 4.6 6.6 3
Total 61argedeposit
banks 105.1
(Per cent increase)
41.0 51.9 ," 76.1
(26.6) (46'.6)
Business ",banks
,I
7.0 8.2
Union Par:Lsienne
2.8 3.1 3.6 Paris-Bas 5.8
1'.4 2);.
2.7
Total 2 business banks
i.l 2.2 /
3.6 " 8.0 9.4 10.9
(Per ,.cent increase)
4.2 5.0
,t:)\
(16.0) (20 .. 0) (60.0) (19.0) ..... I
, ' ,t,
304.4 382.8
(Fer cent increase)
218.3 Note circulation 110.9 151.3
(12.7) (25.8) (36.4) (44 '-2)
It wil be noticed that the, proportionate ofdeposits was
particularly large in 1940, primarily as a' result of the huge deficit
financing of the, State in that year, based largely on central bank,credit,
The rate of :increase of deposits was practically the same in 1940 as the
rate of expans ion in banknote circulation. It "TaS then that the' theory of
the "monetal:'ycircuit" (seep. ) was particularly stressed by Vichy
writers. In 1.941 t;b.e:r.ate of increase indeposl1:,b was even larger"
that forbanknotes. 'I'hen" the, J,-ast months of 1941, and parti
Qu1arlyin 1942" ,the t :i,nflo:w slackened and fell. below
- 204..
The .
. t.t9 . t?-p>
.. Ino"t:b.er.Yfprds, :tlleGOV6:r'IIDlent
P9I'r()"W"ed .... . r:r-9In.t:he... .... ()f... lettip.g .... aC?1ml
u

'la:te>and .... tQ/.ts.extent. the

reduction.in of deposita was a halathY-phenomenon. But it
.also. reflycted.:tn.crea.seO. hoarding of .durrenc'y .and the growth of,cash
dealings in the black markets in commodities and securities.
end.of:].939i-8g..-the of
1942, depos.its in the six largedepositbaDks rose about 120 per cent,
while the note issue expanded more than 150 per cent . While .the Vichy
administration and some writers hoped that the "credit inflation" would
at least prevent a "currency inflation" there was in fact a double
infla.tion the effectl3.of which - ..,aspointed outprevio:usly.. -have not'
f'l.l1ii. .price level. .
The table reproduced above sh6wsthat in 1941. and 1942 the rate of
larger in business banks than in the deposit banks
It has suggested by some observers that the reason for sur
prising phenomenon' is that the busineas banks have been more " collabdr
.atioJltst" than the others and ravoredby the
German authorities.' .Aside fromthedifficulty.
the degree of "collaboration" displayed by different b8.nk:s,howeyer,
an- equally plausible'. explanation seems to be provided by t'he"':'special
chart:tcter' ofthedeposits held by thebusinesa banks. Their 'depGaitors
are mainly: large industrial corpora,tioI$ which is the first.sta,ge of.
the occupation still held large stocks ofraw matertals and continued
to operate ata relatively high rate. It waa only later that the ,dis
.appearance ofauppliea, the difficulties of replacingmachi.n-eryan.d
.,provoked a large-eca..l.e conversion of
assets into liquid funds. Some of them were even obliged to sell
their foreign participations. The enforced liquidity of these corpora
tions would" probably be suff;i.cient alone to account for the high rate
of in 1941-42. .
'rhe of depoeite at the businees banka' IJIa:rka: 'a continuation
of the prewar tendency of theae inat:itutions anq.more
similar to deposit banks. Of course, during the pccupation the
activities of botl1 classes of banks have been concentrated on pur-cMaes
of Treasury paper, but also on a longer view theirlnterests seem in
creasingly to converge. The Paris-Bas, which now hO.Lds a volume of
deposits exceeding that of two of the deposit banka, has reportedly
been conaideri-ng the development of a 'branch 'network; apparently this
project haa not yet been carried out although this bank did open a
branch in Marseille.
MentioIl was made in aect.ion of the new general'banking
statiatics which have to be under the banking law of ,June 13,
'These data, if available, ,would pe:rmita much broader analyais
of French banking than is poal3ible on the basis of figures
- 205
for the leading Danks only. However, the only results of these reports
which have so far been found in published sources are statistics for
deposits March and June 1942 at banks organized in corporate form.
The following table shows the reported deposits on June 30, 1942, of
all such banks with deposits exceeding 500 million francs; these 28
banks apparently held 90 per cent of .total French deposits in banking
corporations.
Deposits of Leading Banks - June 30, 1942
(millions of francs)
Paris Banks Pfovincial Banks
Credit Lyo:pnais .32,'589 Credit'du Nord 6,069
Societe Generale 24,433 Ste. Lyonnaise 3,244
Gomptoir d'Escompte 11,854 Ste. Marseillaise 2,600
Credit Industriel
5,529
Ste. Nanceienne 1,626
Bo N. C. I. 13;342 Banque Dupont
1,037
Credit Commercial 6,365 Credit de l'Ouest 1,041
Banque Scalbert 908
Six large deposit banks 105,112 Bordelaise de Credit 866
Credit Industriel de
Paris-Bas 7,046
. Normandie '
758
Union Parisienne 2,340 Credit Nantais 665
. Union des Mines 1,294 Credit d
t
Banque des Pays du Nord 880 Alsace de Lorraine 528
Four business banka 11,560 Eleven provincial
banks 19,342
Credit Foncier d'A1gerie Colonial Banks
et de Tunisie 4,802
Cie. Algerienne
4,533
B.N. C.T. (Afrique)
939
Two banks for N. Africa 9,335 Foreign Banks
Total,Paris banks 126,007 Westminister Bank 1,174
Barclays "Bank
969
Lloyds and'Nati<;>nal
Provincial 872
Aero Bank (German) 1,057
Four foreign banks 4,072
GRA.ND TOTAL 150,360
- 206 _
Moreover, 150 banks having each less tl1.an 500 million'tleposits held ~ n
aggregate,of-12.6billionfrancs of-deposits on March 31, 1942, dis
tributed as fallows:
(in millions of francs)
67 banks in Paris
5,354
56 banks in provinces
4,350'
, 8 banks in colonies
233
19 foreign banks
2,688
Total for'150 smaller banks
_12,625
The coverage of these figures tsnot complete, but probably no sizable
banking corporation 1 ~ omitted. It would appear, therefore., that total
deposits with banking corporations in the middle of 1942 amounted to
some 165-170 billiQn francs, and it is likely that this figure reached
20b billion francs by the middle of 1943 ;
These data may be compared with figures for the end of 1938 as
follows:
Per cent
Endcf 1938 Middle of 1942- increase
~ large deposit banks 41.0 105.1 156
4busihess banks
4.5 11.6 158
-2 banks for North Africa
3.9 9.3 138
11 provincial banks
7.1 19.3 172
Ot:her-French banking corporations
(residual) 18.5 24.7
Total (estimated)
75.0 110.0 127
.The proprotionate increase in deposits in all categories of the
larger banks was much larger than the increase for banks as,awhole,
the smaller banks represented by' the residl1al figure haVing registered
a much smaller growth.. The estimates for the smaller banks must be
accepted with considerable reserve, however, and figures for the two
dates are not strictly comparablebecauae of the elimination of many of
the smaller banks by the middle of 1942.
Increase in capital funds
The tremendous increase in deposits reduced the ratio of capital
to deposits to aD. abnormally low .level. The element of risk on banking
operations was continuously decreasing as the banks' funds went more
and more-into government securities r a t ~ e r than into commercial loans,
so that it was perhaps unnecessary to increase the banks' capital
resources in order to provide a greater ricushion" against lossers.
However, conservative banking leaders felt that the orthodox capital
- 207
ratio ought to be maintained, and in view of all the uncertanties,wel
comed an opportunity to tie up at least part of their additional obli
gations in the form of capital funds rather thandepos1ts.
opportunity was offsred, of course, by the abundance of
funds seeking investment. As a result ot these circumstances, a large
number of' capital increases were undertaken, particularly in the second
half of 1942, in which most large and many smaller banks have been
involved. The folloWing table depicts the results of this for
., the large banks ana for some smaller ones. The table is not complete;
information for many smaller banks is not,available.
Capital Increases by French Banks
Capital Capital
End of 1938 Middle of 194;
(millions of francs)
Credit Lyonnais 400
1,000
Societe Generale !/625
750
B.. N. C. I. 175
525
Credit Industriel 100
gj 300
Credlt Commercial 200
300
Cie. Algerienne 105
262.5
Creditdu Nord 132.5
2J 204
Lyonnaise de Depots 75
100
Banque. Nationale du Commerce Exterieur !if 75
100
Paris-Bas ;00
2/ 750
Union Paris:1.emie 200
300
Union des 'Mines' 60'
100
Societe Parisienne de Reeacompte -50
j 60
y.
In 1938 only 323 million were paid in... The capital Is now-entirely
paid up.
gj Increased to 200 million in 1941 and to 300 in 1942. The new shares
are completely paid in The old shares Jon which only 60 million
had been paid in 1938, have -since been entirely paid up. (seep. )
3/ ' A new' increase up to 408 million is e;xpected.
4/ See p.
31 The board is authorized to issue new shares- up to 1
6
2 billion.
-/ The board is authorized to issue now shares up to 100 million.
It should be noted that previously when the capital bBnks
ws increased, particularly in the late the new shares were
generally issued at. a large premium over their nominal value, the
amount of the premium being allocated to reserves.' On this occasion,
the new shares have been issued in most casas to the old shareho.iders
at prices very near to the nominal value even though the old shares
Yere being traded at price's several times higher. For instance, the
500francshares of the Credit Lyonnais were issued at 665 francs, while
the market price was -around 6 -7000 francs. The franc shares of the
- 208
Societe Generale were issued at 540 francs, while the' old share's were'
being dealt in at 2,000 francs. This procedure seems to have been
adopted,since the law of February 28.'1941, limiting corporate divi
dends, did notallQwreserves to be taken into account in de,termining
how illuchmight be distributed to shareholders.
Changes in loans and investments
The following tab1esshows the principal asset items in the balance
sheets of the leading deposit and business banks for selected dates in
1939-1943.
Principal Assets of French Banks
(In billions of francs)
Banks
:
Large deposit banks
Credit Lyonnais
1939
- December
1940 - December
1941 - December,
1942 - June
-
December
1943 - March 21
Societe Genera1e
1939
- December
1940 -December
1941 - December
1942 - June
- December
1943 - March 21
Comptoir National
d 'Esc'om.pte
1939
- December
1940 ,-December
1941 - Decem.ber
1942 -June
- December
194; - March 21
Cash Secu
and rities
due and
Total partici-, froiD. Other
assets banks Loans pat ions Bills assets
'I'"
,1.0 18.4 11.8
30 27
Y
18.4 .8
257 29 35
2.6 .8 31.8 3.4 24.9
~
34.7 271
37 35 5
4.2 gj gj ?8.9 fl
33
.4 4.3 28.9 38.7
52
II
2.6 14.8 2.6 .1 .4
91
.1 21.7 3.6 14.5' ~ 5 29
20.0 .1 .2 27.1 3.8
29
29.8 -
32
22.2 .1 4.1 .4
4.2 .1 32.1 .4 4.3 23.1
.1 .6 34.4 2 ; ~ 7 6.5
35
11;6 2.4 .6 6.7
19
Y
2.6 16.6 II.; 2.1 .6
Y
18.2 12.8 2.5 2.; .6
11
2.1 2.1 .4 19.5 150
Y
2.6 gj
155 17
Y ?J
16.2 ' ,1.0 2.1 g; [/
Y
... 209
Banks
Large deposit banks
Credit Industriel
et Co:mmercial
1939 -
December
1940
-
December21
1941 -
December
1942 -
June
-December
1943
- March21
B. N. C. I.
1939 - Decetuber
1940 - December
1941 -. December
1942 -June
-
December
1943
-
March
Credit Commercial
1939
-December
1940 - December
1941'
-
December
1942
-
June
...
Decemb?r
Business banks
Paris-Bas
1939

1941
-
December
Union des Mines
1939 -
August
19)}1
-
Dece:cnber
:Banque des.Pays
du Nord
1938 -December
1940 - December .
1941 - December
'.
'.; '- .\ \ .
\
y. Less than 50 mi1l1on""frw1'6's
gz No figure available' .

Total
assets
3.0
gj
?3
59
gj
y
Cash
and
:
due
from
banks
3
.4
.4
.4
.5
5
Bills,
2.0
19
4.2
4.6
5.6
57
Loans'
.4
.4
.4
.6
.6
5
Secu
rities
and
parti.ci
pations
.2
g/
.2
.2

Other
assets'
.1
gj
.1
.1
?J.
?J
6.5
15 35
1.].
11
.4
10.2
14.3
1.9
1.8
6.7
10.4
13
1.7

3
.4
15.4 1.7 109
202
'1./
'.6
?J
g;
1.8
gj
12.4
gj
2.0
?J
gj
?J
4.1
5.3 .
7.2
gj
y
.1
5
.6
g/
5
2.4
3.6
56

7
9
.8
gj
.4
Y
Y

?J
3
'3
.2
gj
Y
3.9

15
'.4
1.1
17
.5
.2
5
.2
.3
.1
.7
1.5
.:t.
.2
3
1.1
(
-
-
.1
.2
.2
.1
-
.4 .1 .2
-
.1 .1
.9
.8
.1
.1
.6
.6
.J
-
.1
.1
.1
.1
- 210
It will be immediately apparent that virtually the entire increase
in deposits at these banks has been invested in bills. Cash reserves
and balances with banks are up somewhat in most cases. Loans have
expanded moderately (especially in the-first quarter of 1943 in the
case_ of the Credit 'Lyonnaisand Soct-ete Generale y, but- it is likely
that within this category commercial loans proper have been replaced
to a considerable extent by loans to and .semi-public bodies.
The itemB for securities and participations, always small figures not
. revealing the true significance .of such holdings, did not markedly
change for any of the banks.. In fact, during the three years 1940
1942, while the total deposits of the three largest deposit banks
increased by about'45 billion francs, holdings of bills alone rose by
nearly 43 billion francs. In the case of the leading banks,
the Paris-Bas, acquisitions of bills in the period from the end of
1939 through March 1943 (6.7 billion francs) actually exceeded the
rise in deposits(5. 9 billion).
The significance of this development lies in the fact that in
creased holdings of Treasury paper have accounted for even more than
the total increase in bill holdings. No precise information is avail
able concerning the distribution of the bill portfolios of the banks
betweeIl. Treasury and commercial' paper. It cannot be doubted, however,
that the greatly increased. liquidity of French trade and commerce
during the occupation period, which has been described above, has
resulted in a diminishing volume of commercial bills. The banks'
holdings of Treasury paper must, therefore, have 'increased by 8ub
the rise in total bill holdings and may now
amount ,0" as much as 15-80 per cent of. their bill or over
half of }leir total assets. ..
Not only have the banks been buying Treasury paper in large
amounts, but it is reported that they are now acquiring Treasury
obligations of a much longer maturity thml was previously customary.
Before the war, banks normally took Treasury bills with the maturity
of three months or less, which at that time yielded interest or
around 2-3 per cent. With the general fall in ,banks
appear to have found it necessary to invest in longer-term, higher
yielding Treasury obligations in order'to maintain their earnings at
a satisfactory level. They have, therefore, taken 6 and 12 month
Treasury notes, and even 2 year notes which, under present circum
stances, 'yield only 2.5 per cent.
iJ The:. sudden increase in loans in 1943 may have been assooiated
wit.h the new German policy introduced. in October 1942 of ceasing
to make advance payments on armament contracts, of which a.con
siderable number were placed in France. Another report is that
the increase represents largely special loans to the- Treasury of
undistributed corporate profits deposited with banks in
with a deCree issu.ed e/arly in
- 211
Reduction in foreign
While the granting of cammercial and, industrial loans has
expanded during the occupation period - in fact , it. was probablyre
duced - field of banking operations - participation in foreign
ventures - has ,virtually disappeared. Moreover, the .Frenchba.nks have
been previaled UP9n by German interests to se-Ila large :part of their
holdings in and banking enterprises in central ,and south
eastern Europe. During the inter-war period, the strong political
position of in Europe, particularly in the so-called "succes
sor states" - Czechoslovakia, Yugoslavis, Poland, etc. - fostered
the expansion in those countries of French financial interests" repre
sented,es'p.ecially,bY,the large business banks and their affiliated
organizations. Tb.ese interests had to surrender their position fol
lowing the collapse of France's political and military power in 1940.
. ,
A of the disposition 6f French, holdings in industrial
enterprises throughout Europe is beyond tne scope Of thispa;per. How
ever, the following .examples may be given of the sale to German inter
ests of French participations in banking enterprises:
The Banque de Paris et des Pays Bas has801d to the Dresdner
Bank its one-third interest in the Bank of Commerce.
The Banque 1 'Union ParisieIUle has lost control over the Bank .
of Athens, which since the German occupation of Greece has been placeg.
under the wing of the Dresdner Bank, and ,has sold its controlling in
terest in the Eank to the ,Deutsche Bank.
The Union Europeenne(affiliated with Banque de I 'Union ParisieIll1e
and Schrieider-Creusot) has sold to the Dresdner Bank its minority in
terestin the Hungarian General Credit Bank and therebylostltsinterest
, in the lat,ter's subsidiary, the Croatian General Credit Bank,.,' -.
The Banque des Pays de l'Europe Centrale (associated with the
Paris-Bas), wnich in 1938 had sold its Austrian affiliate -q.o a group
headed by ,the Bank,has since transferred its Czeohoslovak
affiliate, the Bank for Commerce and Industry (fornlerlyLaenderbank) ,
'to the :Bohemian Discount :Bank, by that time also under the control of
I ,
the DresdnerBank.
This list of banking changes 1s not complete; even where trans
fers of ownership. have not occurred, ba.nks in German Europe in which
French interests were represented :are not thoroughly dominated by
Ger.rnau i-nfluence or, in some cases, have been forcedirito liquidation.
New fieldS of activity_,
Two fields only have remained open to French banks for' the'ir
"financia.l" activities: the colonies (North Africa). and the es'tab
lisbment of concerns for the production. of substitute materials., Until
..,; 212
November 1942 French banks devotedcons,iderable attention to new -enter
prisesinNorth Africa, cormnunicationswithmost other colonies being
;pract'icallyimpossd:b.le. :Several of ,them ,extendedthe'irre.pre;sentation .
in iAfr,ica-by,oranches ;orby aff.i:liates -particularly 'theBe :N. C. I.,
"which :in the summer ofJ.940 'took over ,a ,sma:J.l !localbanki,n'Algiers and
renamedttthe'''Banque 'Nationalede rCred:i!ta ltlrid;ustrie -(Afrique;) n.
This ,bankoperied a large'network bf 'branchesanq.became the largest
purely colonial ,bank 'without officesin;ContinentalFrance. TheB. N.
C. I.alsoestabllshed;a ,branch office'atMartinique and took an in
terestin the Credit 'FoncierdeMadagascar.
In 1941-42, numerous industrial arid financial corporations were
established for the economic development of the colonies. Some of them
also aimed.at thedeveJ..opment 'of industry in France proper, but gener
ally they stressed the .role of the colonies in the future development
of the country. Among the new corporations which attracted most atten
tion was the Associationf1na.ncierepourle Developpement 'del'Industrie
en Franceet l'Etranger, established in the fall of 1942 and backed by
the whole strength of French banking; the ,four largest deposit banks
and the two leading business banksparticlpated. It was reported in
Swiss papers that the new company would devote itself to "large projects
of Franco-German economic cooperation.. "
Among other financial corporations established recently are:
pour Ie Financement de l'Industrie (by Credit
Lyonnais and group Schneider),;
Societe Financiere Transafricaine (With the collaboration of a
group of banks - the Union des Mines and the' Union Europeenne
Soceite de Recherches et Exploitations Minieres (also with the
collaboration of the UniGndes Mines); ., --
Omhium. Francaisd'Etudes et de Participations (by :Banque de Paris
ke and others ) .
It should be noted that some of these companies were merely
"Syndicats d'etudes" (seepage 58); it is. not yet known if and when
these actual operations'! "
;niiietliecolonies are looked to primarily as producers of raw
.lle/':i1ewventuresin been directed rather to the
or in some cases to the development of' low
grade domestic "natural resources. 'The of substitutesie
undertaken mainly With the collaboration of German groups, particularly
experienced in the field of "ersatz". Some large newcom.paniea have'
beensatab1ished, partioularly-in the c.hemioa1 industry, to take over
plants, while others have established new plantf) AmOIlg the 0
most notorious examples of . Franco-Ge:rman oollaborat.ion are t4e campa;cy
"Franco1or", which took over the plants of Etabiissem.entB KUhlmann,
- 213
the largest French cheItJical concern, and the "France Rayonne" which
grouped most French producers of :rayons. German concerns acquired
large inte:rests in these new industrial combinatiohsby contributing
patentsa.n.d technical assistance. It is not J:rn.O'WIl whether and in
what manner the bar;Jks had a hand in these t:ra.nsformations.
Some new corporations have been establishedfor"the production
of substitutes, especially "ersatz" fuels. The Banque de Paris-Bas
is known to have participated in the foundation of the Gasogene Imbert,
the Carburants Francais pour Gasogenes, and the Societe Franca:1.se pour
Pates ChiItJiques et Mecaniques. The Union Pariaienne probably collabor
ated in the establishment of the Societe Nationale des Petroles d'Aqui
taine. .
Noteworthy developments in individual-banks
The expansion of the <B.N. C.1.. '. since the occupation has been
as notable as the development of its predecessor, the B. N. C.,dur
ing the 'twenties (see pages 21 and 85). -While the other large de
posit banks were cutting do'WIl their branch organization, a movement
encouraged by the prov.isions of the barJking law of June 13, 1941, the
B. N. C. I. continuedto establish new branches notwithstanding the
oriticiam this policy aroused in bankfng circles. A special feature
of the :B.N. C. I. ,expa.nsion was its intensive activity in North
Africa (see above). In addition, the B. N. C.I. has tripled its
capital during the -waI'period, from .175 to 525 million francs.
The Bo N. C. I. is often referred to popularly as "Pierre
Laval's bank", and indeed the leaders of the Be N.C. I. probably
have' conneotionswith Government oircles at Vichy which have assisted
them in their expansionary program. There is no evidence, however,
that -Laval htmself has a personal interest in
Among the large deposit banks, the_usually
Credit Industrial has' expanded its activities somewhat. It
bas acquired a participation -probably a controlling interest - in
the :Banque Transatlanti-que ( see page 103), probably asa re.su1t of
.the tfaryafiizatlon" of this institution, the only business bank con
trolled by Jewish intereats. At the' same time the Credit Industriel
acquired interests in the former affiliates of the BanqueTrans
atlantique (Banquede Tunisie ani ;Banque Commerciale de Maroc) and
established friendly relations with the:Banque Commerciale Africa-ine
(seepage 122). Moreover,. it opened branches at Algiers and at cran.
The Credit thereby shared extensively in the financial
driva t oward North Africa.
Among the business banks, mention should be made of the recent
decision to merge the :Banque desPays duNord w:1ththeUnion1ttiropeenrie,
both belonging to the.Schneider-Creusotgroup. The Union Europeenne, .
'ha:vingsold Iliost of in Central and Eastern Europej has
- 214
increased its capital from 28 to 140 million francs byissuing.new
shares asEtinst its accumulated Although it is the bank
which is to be absorbed by the financial organization, it seems that
the intent:ion ofthemanagem.ent is to continue in the baning business
with.the qonsolidated company
. :J't;\
One of the leading colonial banks, the BanqU6 de l' Indochine
(see p. 120); has shown extraordinary activity far surpassing in
scope the.usual field of interest of such an institution. It 1s
reported to have acquired "substantial" interests in the Banque de
Paris et des Pays-Bas, the Caisse Centrale de Reescompte (see
page 118), a.nd in a leading Dutch coionial company, the old and
famous Nederlandsche Handelmaatschappij. The interests in the first
two companies were probably acquired from Lazard Freres in the course
of the "aryanization" of that firm; perhaps even the shares of the
Dutch company were derived as a result. of the expropriation of Jewish
property in France or the Netherlands. The participation of the
Banque de l'Indochine in the Paris-Bas and the Caisse Centrale tie
Reescompte gives it considerable status in the damesticorganization
of French banking. Its share in the Handelmaatschappij, on the other
hand, gives it potentially an interest in the Netherlands East Indies;
at the moment , however, Dutch company has lost contact with the
Indies as a result of the Japanese occupation, and its resources in
the Netherlands have been forcibly enlisted in support of the Nether
lands East Company, a German-inspired project for placing Dutch set
tlers in the Baltic countries and neighboring Rusaianterritory.
The whole development of the Banque de rather
mysterious, but it is significant to note.that ita presideet and. gen
eralmanager - a government appointee - is Paul Boudoin, VicbyMin1eter
orForeign Affairs for some time. after the French collapse and a no
torious "totalitariari
u
It is possiblte that the bank's activities are
designed largely to serve Ge:rm.an interests.
Aside frOm. the establishment of two .German banks in Baris (see
below) the only new.baIikof importance :whi dh has on the French
scene is 'the SocietePrivee de ReescOltipte, established el:l.rly'in 1943.
No information is avai1aq1e about thisinstitution except that its
capital is 15 million francs and that, as is indicated by the title,
it was founded :to deal in Treasury paper and bank acceptan.ces. It is
characteristic. of the present state of.French banking that the only
new bank established during the war should join two older
of the same kind (aee above pageI17:f.), to deal in Governm.ent paper.
Aryanization of Sensh firms .
While negligible in large deposit and
business banks and. In the "haute Banque" (except forthe Ba.nque Tra.na
at1ao.tiqueand the abnking, houses. Rothschild ]Ireres and Lazard Freres)
there were S0JJJ,6. smaller Jewish ,banks and aomeJewlsh firma. engaged in .
securities business or in international operations on coupons,
- 215 ...
1'oreign. exchange" etc.}. By virtue of ,the "racial" decrees in the oc,;.
cupied as ,well as in the "free'!' zorie, these enterprises have been
"aryanized". " exact' procedure of the "aryanization" seems ,to have
varie'd., " In sOme cases<the, firms.are under an ",administrator" appointed
by the authoritiesjin other cases the partners sold their interest to
Aryans with the consent (explicit or tacit) of the.authorities. In
:ma.ny ,cases the aryanization seems, to have been a pretext for depriving
the owners of their property to the profit of some German or French
businessmen and officials. y
German penetration
No direct German penetration into French banking 'has been reported,
except of course in Alsace Lorraine (see below). One German bank has
been set up in Paris, the Aero-Bank (capital 200 million francs), 'an
affiliate of the Bank der De.utschen Luftfahrt. Its primary. role is to
manage and finance German armament orders in France. The deposits of
the Aero-Bank on June 30, 1942, exceeded 1 billion francs,
representing funds of Ge:r.m.a.nenterprises haying connections with French
in9.tlstry. The Bank der Deutschen Arbeit (an German
Labor Front) has established a branch at Paris, probably in order to
,handle matters arising in connection with the recruiting of 'French work
ers for Germany. In addition, seme large German banksha,ve established
"infor.mation centers
U
, but the opening of branches, about which there
were some rumors, did not materialize. In general, the German author
ities appear to have preferred using existing French establisbments;
for example , remittances to their families "by French \vorker's employed
in Germany are made largely through the Credit Lyonnais . Despite the
lack of evidence concerning direct German penetration, however, there
can be no doubt that German authQrities watch closely all activities
of French banks.?J '
Alsace and Lorraine, althOUgh not formally a..n.nexed to the Reich,
nave become completely incorporated in the German monetary and banking
organization. Some small local banks, presumably continue ,Under the new
regime with appropriate changes in their management , but the larger
banks in these provinces have been absorbed by German institutions.
The branches of the ,Societe Generale Alsacienne de Banque, affiliate
of the Societe Generale (seepage 110), ,have been taken over by the
:Badische Ba.nk, an affiliate of the Berliner The
branches of the Credit Industriel d'Alsace et de Lorraine have been
taken over by the Deutsche Batik L/' those ,of the B. N. C. the
y There,..is no legal definition of what constitutes a "jewish
fY
entel"
prise; it depends upon the judgment of the authorities.
g/
It should be noted enemy institutions (first the British banks
and since December 1941, the American) are administered by a German
commissioner.
The Credit continues to function at its head office (Paris) and the
,branches outside Alsace -Lorraine.
216,
,Dresdner Bank, and the branches of the Credit Commercial by the Kom
merzbapk.The,Cred;tFoncierd,!Alsaceetde Lorraine ( see page 143)
was merged with'the Rheinische HypDtekenbank, Mannheim.
7. Public Credit Institutions
Only a limi amount of information is available concerning the
cievelopment, of public credit institutions 'during the war period. In
general,their deposits have rise:n, reflecting the pervasive JIlOnetary
inflation, and their funds have found fewer and fewer outlets other
than meeting the financia.l needs of the Treasury. There ,has been a
strong tendency .toward even closer public control'of these institu
tions, obviously to make sure that all their resources are'mobilized
for purposes.
Savings institutions
Despite the hoarding of currency, the monetary inflation of' 'the
war period arid the general liqUidity, have alao been reflected in
rising,deposits with the ordinary savings banks and with the Postal
Savings The 'Government encouraged this development of the
ftmoney circuit" by increasing maximum amount allowed on' each
passbook held by an individual francs to 25,000 in 1941
and to 40,000 in October 1942. The ma:x:imumfor dep,oaits by companies
(100,000 francs) was not changed. There was a substantial rise in
deposits after each increase in the authorized maximUm for individuals.
Needless to say, the decree of November 1938, limiting payments into
a savings account to 20,000 francs a year" was repealed. Nevert-helesB,
the rate of increase of the deposits in the savings banks has been far
less than that in the commercial or banks. Small savings do
.D,ot expand in a period of rising prices and rel'atively stable wa.ges.
It is likely that the new deposits originated primarily with the agrl
cuJ.tural population.
Deposits in Savings Institutions
( In billions of' francs ) '.
Ordinary Postal
savings Savings
Deoember 1938 banks System .Total
December
1938 36.9
253
62.'2
ty
1939 392
26.7 63.9
"
:L940 41.0
""'27.0
68.0
"
1941 47.2
3
0
09 78.1
"
1942 51.9 38.4
90'3
February
1943 41.1
April
1943 58.1
- 217
In line with the .reduced yield on government bonds, there has
been a reduction of'basic interest rates on savings depoHits, but
preferential rates have introduced to favor rtepositors who leave
balances' idle., , Early in 1941, 'it was 'ruled that in establish
ing the rates, account should be taken of the interest rates pre
vailing in the market,; the result has been a decline each year in
the basic'rates paid by both the ordinary savings banks and
Postal Savings System. These rates, however, remain higher ,than
those offered by the deposit banks. On the'other hand, in order to
stabilize deposits, a law of December 18, 1940, provided,that
positors who aid not VTithdraw more than 5., 000 francs in the course
of a:nyyear would receive an. interest premium. to be fixed by the
State Secretary of Finance. Later on, the figure for permissible
withdrawals was raised to 8,000 francs and in 1943 to 16,000 francs.
The interest premium was first fixe.d.at 0.5 per cent, .but at,th$
beginning of 1943 was ra.ised to 0.75 per cent while the basic rate
VTas correspondingly reduced. Approximately 95 per cent of savings
depositors are reported to rec$ive this bonus;. this is -fully cred
ible, since most depositors hold only small amounts.
The rates paid 'to savings depositors during the war years.are
shown in the followj.ng table:
I
1943
Rate paid by the Caisse des Depots
et Consignations
375 35 2.75
Rates paid by the ordinary savinge
banks
3.0-3.25 -2.5 2.0-2.25 :1-75-2.0
Including premum 3.0 2.5-2.75 2.5 -2.75
Rates paid by the Postal Savings
System
Basic
2.75 2.5 175 ,15
Including premium 3.0 2.25
A law of December 18, 1940, changed completely the composition
of the Commission Superieure de l'Epargri6 (see p. 129). Thepresent
twelve members of .the Cammissiona.re now all appointed by the Govern
ment, the election of some members by Parliame;nt and some by t:p.e
savings banks having been abolished. Five are chosen from the ,pres
identsor directors of savings banks, two from persons specializing
in prob1ems of social security, and five are government officials.
The main object of the cllange, of course, wasta eliminate themem
bers representing Parliament, but it is characteristic that even the
representatives of the savings banks are no longer elected by the
banks, but are apP?inted by the State Secretary of Finance.
- 218
Another change. in the savings bank organizationwas effected by a
decree of abolishing municipal and "mixe4" savings banks
as a form.: of organization; within, six months, "all such banks had to be
come conve:rted, intc!i Hcaisses autonomes
il
(see page' 128).' Thi[s ruling
givespr,oof ofYichy' s "distrust ,of local administrations even though in
most of them the elected officials have been superseded by Vichy ap
pointees.
Thf savings banks of Alsace and Lorraine have apparently been
brought under the terms of all relevant German law. It has been re
ported that all of the forty French savings banks in Lorraine have
,been liquidated and replaced by seven new German savings banks, in
eluding a Municipal Savings Bank at Metz and six district savings
banks, the deposits being provisionally guaranteed by the district ot
Lorraine 0
Credit National
The Credit National has returned in part to the work for which it
was established in 1919, i.e., financing the reconstruction of war dam
age. Contrary to the practice after the first World War, this time the
"sinistres" were granted no right to compensation from public funds.
The Government could not "ignore the problem of reconetruction, however,
and several laws were promuigated to assist the "sinistres", particu
larly.by giving them loans on favorable terms, including some interest
free.y The Credit National is entrusted with the task o:t: granting
these loans, withfunas either provided directly by the Treaaury or
raiaedby issuing its bonds on the market. In the latter. case, "of
course, the Treasury bears the interest burden to the extent that' it
is not covered by the interest - if 8.ny - received from the" "sinistresII
The latest available state:tnent of the Credit National, for December 31,
1941, shows loans on "dommages' deguerre 1939/40" at 983 milli,onfrancs.
On the other hand, the normal medium-term loans to industry declined
up. to the end of 1941; not only were new demands for loans small, but
some lo"an.s were repaid before ;maturity. At the end of 1941.the amount
outstanding was 1.5 billion francs as against 1.7 billion at the end of
1940. This qecline occurred despite the fact that the Credit National,
being able to borrow on better terms, reduced the rate charged to cus
tomers from 7.15 per cent to 6. 50 per cent, and later to 5.65 per cent,
according to the nature of the security provided.gj
The only wartime change in the:mar+agementof the 'Credit National
i's that wb,:i.le formerly all auditors . were elected by theshareholdera,
two pf the four are now.appointed by the state Secretary of Finance from
y The State has also granted some ,subsidies for the reconstruction of
certain categories of buildings.
Rates preva:tlin'g in July 1942.
?!
-219
high Treasury officials. The shares of the Credit National were intro
duced on the Bourse in February 1942. y ,
Credit Foncier and.Sous -Comptoir des Entrepreneu.l"B
'rhe experience of the 'Credit Foncier has been similar to that
of the Credit National: no:rmal loans have declined, but some loans to
"sinistres" have been made.
In October 1940 the Sous-Comptoir des Entrepreneurs y;asentrusted
with making loans for the reconstruction ,of certain categories of
buildings. The loans may reach 90 per cent of the reconstruction ex
penses and are extended at an interest rate of only 1 per cent. The
loans are represented by bills which may be discounted at the Credit
and then rediscounted at the Bank of France . The Government.
pays to the Sous-'Compto!r the difference between the rate ch,arged by
the Bank of France and the rate of 1 per cent which it receives frOm
the borrower. The Government also guarantees the Sous-ComptQir and the
Credit Foncier as endorser against any default of the borrowers.
No recent balance sheet of the Credit Foncieris available, but
some figures have been reported concerning its position at the end of
1941. The a.m.ount of "normal" loans outstanding was 18,985 million
francs at that time as against 20,559 mi11ior. at the end of 1938. As
in the case of the Credit National, borrowers have tended to repay
their loans before :maturity and new business has be.en negligible'.
The institutions had bonds outstanding for million francs as
against 15,723 million at the end of 1938. Again as in the case' of
the Credit National, the Credit Foncier found it possible to convert
its indebtedness to a lower interest rate, around 3 1/2 percent.
Consequently,inabout the middle 01'1942, the rate .charged for loans
to departemerits and carmn:unes was reduced from 5 to 4 1/2 per cent.
The limitation of the general meeting of, shareholders .to the
'200 largest holders was abolished by a law dated November '24,1940;
" all shareholders may now attend the meeting and' vote for direct,oTs
in proportion to their holdings.gjA1so while formerly all auditors
were appointed by the shareholders, two of the four are now named by
the State Secretary of Finance from high Treasury officials
Other public credit ,institutions
Ag;:icultural credit. Previously, the Caisse Nationale de Credit
Agricole, and its affiliated regional-institutions obtained the funds"
excess of their deposits either from the Treasury (for
long-term loans) or from the:Bank of France (by discounting-bills}.',
See p. 193 for an a.ccount of the new role of the Credit National
in accepting bills drawn by creditors of public bodies.
Cf. the abolition in 1936 of the prlvileged position of the 200
. largest shareholders in the :Bank: of France.
- 220
1942, the Caisse Nationale . was authorized to issue five year
bonds bearing interest of ;.25p'er cent, presumably guaranteed by the
..... Sincethere"isno reason to believe that this'loan was neces
s1tatedbynew: tural t , it may be assumed that
the proceeds-were lent to the State - or used to repay loans from the
State to the Caisse Nationale. This method of
quirementswas probably designed deliberately to attract the liquid
funds of farmers, who have been enjoying an increasing share in the
national income during the occupation period.
By a law of November 20, 1940, "the autonomous character of the
Caisse-Nationale was 'abolished. The Caisse is now under the direct
authority of the Ministry of Agriculture and the ,.financial control of
the Ministry of Finance.
The people's banks, being institutions enjoying a special legal
status, are not subject to the law of June.13, 1941 (see p.
197), unless the State Secretary of Finance decides otherwise. How
ever, a list of people's banks has been established by the Committee
of Professional set up pursuant to that law, and pub
lished at the end of 1942. The title "people'sbank
H
may be used now
only with the authorization of the State Secretary of Finance upon
the advice of the Chambre Syndicale. According to information pub- '
lished in April 1943, there are now 58 people's banks with deposits
of about 3.5 billion francs, as against 76 banks with deposits of
1.3 billion francs in 1938. The expansion in total deposits refle9ts
the general banking situation, and the reduction in the number of
banks is no doubt an indication that the program for consolidatIng
and "rationalizing" the people's bank-movement has continued during
the war period.
The Banque Nationale. pour Ie Commerce Exterieur may now be .
ranged among the semi-public credit institutions, even niore properly
than before. In the first quarte;r of 1943, its capital was increased
from 75 to 100 million francs, the new shares being purchased by the
Caisse des Depots et Consignations. At the same time, the board of
the Bank agreed to require the holders of the 75 million.(nominal)
old shares to pay in the further 25 million francs in addition to .
the 25 million already paid.
The balance for December 31, 1941, the latest
shows some increase in bills and in loans, although French foreign
trade had declined to very small quantities. Presumably, the item
for "bills"riow consists very largely of Treasury paperg
(millions of francs)
Assets Liabilities
Cash and at Bank of France
123
Current accounts
Banks and correspondents 154.0 Creditors
- 221 -
ABsets Liabilities
Bills
2003
Collections -73.2
Loans
69.3
Acceptancef:
50.3
Securities
13
Guarantees 159.6
Bills f'or collection
14.7
Sundry accounts 5.1
Acceptances
503
Capital. 15."0 ,
Guarantees 159.6 Reserves 26.4
Sundry'accounts 1.8 Prof'it and loss 3.4
Prem;I.sea, f'urniture, etc.

Profit- and"loss 0.4
aharehol<lers' liability 50.0
Total
787.5 187.5
No divident waJJ paid f'or194-0 or 1941. A ,divident, of 6.25 f'rancs
per share (5 'per cent of' the patd-in .capftal) , was paid f'Qr 1942,.",
Caisse Nationaledes marcheEk':w:r '1 At the end of' 1942, the
/amoUnt of creditjJ onbebaJ.:r pt, pUPl1c.cOntractors
guarantees) authorizea the Caisse amounted to 6. 7:
of ;which',2.5 been utilized. Thecorre.aponding'figures at
the enp. of wer&' i.'2"andO.6 billion, respeo-tively.
A law of December ,22, 1940, :made the,gneralmanage:rof the'Credit
NationaJ.,who alW83"s was a Goverriment "appo;1.n"!i-e51,,'ex-Off'ic1.o president
of this institution and abolished. a. that the Government-had
to follow apatlel'submitted,'b-y:theNatlonalEconomicCouncil in appoint
ilit three of the directors All directors are now simply GovermDent
appointees or are ex-officio members representing Government interests.
The OaiBse,Nationale de Credit,aux Departments et aux Communes
was abolished in March 1942"and its liabilit'iestaken over te _!,he
Caisse des Depots et' Consignations. 'This change reflected the cen
tralization of governmental. the feature of' the, Caisse having,
been that its board included representatives of local public. bodies and
cb8.mbers of commerce. ' '
8:. Insurance Canpaniesy
Initial war measures
.Immediately f'ollowing the outbreak of' war, all Ge:rma.n., Austrian
and CzeQ.b.oslo:v:ald.an ,insurance, companies, includi.ng all" Which oper$ted
in France,vere blacklisted; French f'inns8.n.d individuals vere f'or
bidden to transact 8.D71rmurance "or reinsUrance business, or, tobave'
Prepared by Foreigu Research Division of' Federal Reserve Bank of'
Bew York. '
- 222 ....
aDJ kind of commuriicati6n with the blacklisted companies. Reinsurance
treaties between Ft'ench and enemy companies were thus suspended, but
were not actually cancelled, except for those drawn up in very recent
years which provided for automatic cancellation in the eyent of war
between the countries of the companies concerned. The suspension
o:E:treaties not thus drawn up ,.left the French direct. insurers uncer
'tain as to the legality of turning over to English .reinsurers the
business' formerly reins"li.red by, German companies. This situation was
ihFebrtiary 1940 by a ministerial order permitting the uni
lateral cancellation of such treaties by individual decisions and
pronouncements by the of At this t1In.e it was said
t,:nat gained ovet' so.IIl8I.1Y neutral
European reinsurers that they continued to acquire much :frenCh busi
ilessin spite of the blacklist. Partial realization of this led 'to
the issuance of a second blacklist in early April 1940, which con
tainedthenamesof anUID.ber of Swissan.d Dutch fi:r.m.s believed to be
operated by the enemy or to be acting as between French
and German comparlies.
The fuaihprdblem in insurance raised by the war was, the question
of warrfsk coverage, which particularly affected the fields of life;
marine ,fire, and workers' On September 1, 1939 war
risk insurance ofv-Bssels of dver 500 tons was made compulsory .An
el:tra.premiutrl was to be charged on such policies, which were reinsured
fdr'the .most pa:t't. by a pool of marine .insurers, . but partly by the gov
ernn1ent.. The whole p:rogram was placed 'under the direction of the
Co:rrmdasion des Assu;rance,sMaritirhes
J
which was created by ministerial
decree 9Ilthe first day of war. Each marihe war risk policy was to
beexam:inedand signed by the Minister of Transport or his
advisOry cb1:rJIn.ittee, and the rate-s charged had to be approved by the
Minist-er of,Finance.
By the decree-law ,of October 19, 1939, provision was made for the
a. "groupement" of fire insurers to underwrite risk's of
war in fire.policies covering certain stocks,:rnaterials,and commod
ities important to the .nation' s war economy, such as -store,s of agri
cu..l.:tul:'al products, fabrics, and rubber. The group was to handle the
,?<6h.aitionS811d details 0t the insurance. and the administration of the
turned over 90 per cent of the premiums to the State,
liable for 90 :,per cent of the claims.
The question of- inclusion of war risks in life insurance contracts
by the. decree of: 1940. No COID.pany was allowed
to insure. war risks in. a life policy :uD.less.:t joined, with the . approval
of .the Min}ster of .. iJhe life .1Iisurers
formed,' for that pi.1.tpose. The maxiinum amount of a poliCy including war
risk insurance. W&S at 3
0
0,000 i. An, extra premium of. 4 per
cent//ofthe' face valtie of the policy was to be cha.rged, to :be subject
to revi'sion after the war in case of a more favo:t'able
parience. In case of de.ath of the assured, the beneftciary was to
- 223 ,
receive 40 percent,of the. claim at the time and 60 per cent with
in eighteen months after the end .of hostilities.. The business continued
to bewrftten indi:v.idually, but was then pooled by the members of the
with the stipulation that no profit was to accrue to the pool.
The state took no part in class of war risk. Forty-nine
life companies belonged to the group in April 1940.
Finally, a decree of April 24, '1:;40, initiated a program forinsur
ing employees against risk of death or incapacity suffe:red at
'Wor:k as a resul1i of acts of war. However, this progI'amwas apparently
discontinued in August 1940. . ,
German acquisition of British business after the armistice y
After the signing of the Franco-German ar.m1stice"the blacklisting
of German and insurers was lifted ( Ciecree of' July 28,
1940) ,a.I+d insurance relations with the, U:r:ti ted Kingdom", which had always
been :1mpprtant to the French, partic-q,la.rly in the fields of marine in
s,urance and fire reinsurance, were more or less completely severed. All
British offices in France were closed. No British company was allowed
to write any new business in France or Algeria, but could keep up
'transactions, through administrators appointed by the French on account
of contracts already in force in the branches of life or workmen's com;"
pensation, it had sufficient deposits and funds in France
(Decree of September 12,1940). Contracts in other branches were sus
pended, and then by the deqree of August 27, 1941, Were either brougp.t
back into force or cancelled by decision of the Becretary for
Finance. The place of British marine reinsurers was taken over tem
porarily by the French'State when the decrees 'of July 16, 1940, andbf
September 18, 1940, provided for State reinsurance of ordinary,marine
risks on ships flying the French flag, for"the duration of the war
and si:x;monthsthereafter. This program. apparently was discontinued,
however, in October 1941, when a Bourse d'Assurances
created as a sort of marine insurance exchange for private lnsurers,
along the lines of Lloyda.
The loss of connections forced the French topurn to in
surers and reinsurers in Continental countries" and German
i
companies
were quick to seize the opportunity of entrenchingthemselvee:l in the
French field. An agreement between the'French Insurance Control De
partment and an organization of Germ.a.ninsurers gave abl8.nket con
the opening of new agen,cies of ,G:erman co:rn.panies allover
France; about a dozen new German companies opened for business .in
France, oIle,of which, nl'lordstern", acquired most of the,f0r.trler British
business and sold over 21 million francs of insurance in France in,"
"1941. The number of Axis and Axis insurers, both old 8lld
new, now operating in France has been. estimated at as as 120.
'largely on Wormation supplied 1>Y. :Branch, Office of
Economic Warfare.
- 224
Every French insurance office was required to act as representative for
at least one German company. In May 1941 it was reported that an agree
ment between French and German insurance interests had been reached on
a program for the joint covering of risks in French territory, with the
?cknowledged intention of driving out all remaining traces of British
, insurers. An . "agreement" is also reported to have been imposed on the
French providing for the redistribution of all British business between
German and Italian companies, completely excluding the French in order,
as the Germans said, "to avoid further interference by the authorities";
of the British business thus taken over by the Axis apparently one-third
went to Italian and two-thirds to German companies. This step possibly
followe.d soon after the French decree of August 27, 1941 concerning the
suspension and cancellation of policies written by British companies.
Not only did the German companies take over in large part the re
insurance of ordinary maritime risks formerly written by. the British in
France but they forced the cancellation of all reinsurance undertaken
by considered unfriendly Germany and substituted German
reinsurance.
Further influence of German insurance interests on French has
be.en gained through the participation of the more im.portant. French com-'
parries in the German Association for the Coverage of Major Risks, which
centralizes and clearing of reinsurance of all kinds except
life, with the purpose of achieving a more even distribution of large
risks thrOUghout the German-dominated section of the Continent. This
association is managed by the important German reinsurer "Munich".
Axis penetration in French insurance was even favored in some respects
by french legislat10n (see below)
Alsace and Lorraine. The French and British insurers operating in
Alsace and Lorraine were activelypermanized after the armistice. Their
concessions to operate were 'cancelled as of June 15, 1940,and their
policies were transferred to German companies without allOWing
holders the option of cancelling their policies or choosing,their own
During the :period of reorganization, the Central Office for
Foreign Insurance, a German agency located in Strasbourg, collected
premiums on former French 'and Brlttshbusiness'and redistributed them.
among the German companies. This amounted to a substantial business,
for this industrial region had always been a particularly attractive
field for British companies, from which all except in
land narine, were excluded by law after the last -war. Around the be...
of 1943, the Gennan commercial, code and all other relevant laws,
in91tidlng German insurance legislation, were introduced in these prov
inces .
Vichy legislation
During the occupa.t ion period a welter of decrees and regulations
were issued in the insurance field. Ma.nyhad the purpose of supple
menting and reshaping the technical and supervisory.provisions of the
- 225
1938 laws, while were emergency measures instituting even more
strict control than had been envisaged by those laws.
As a part of the general legislation for a "di,rected" economy, a
"Committee of Organization" for insurance was established by decree of
the Chief of state on October 11,1940. yIts first members were: M.
Jacques Guerard (presumably the director' of La Preservatrice in 1938),
President: M. Maurice Grimpel (manager in 1938 of La Nationaie-Vie'),
M. Henri Guillaume, andM. Pierre Carteron, Secretary., A.1,.thqughcthe
duties of this Committee were not touched upon in the decreEl it
dently was given very wide powers over the insurance indul3:try,and
the Permanent Commission of the Superior
of August 13, 1941,'to insure a complete submission to,
The decree prOVided a membership of gove:r:tlment and insuranceo;f'fiqia.ls
dependent either directly or indirectly upon the approval of theSecre
tary of state for the National Economy 'and Finance. The whole field
of insurance supervision was apparently removed from the' juriadicti-on
of the Minister of Labor and was relegated to the Secretary of state
for Finance.
In 1941 the system of "groupements". was further implemented"
probably not only as, a )lleasureof of the various branches
but in order to derive more security through coinsurance and mutual re
insurance. The life group continued to operate, and in May two new
groups were instituted by decree: ,jne group for insuring accidents of
common law droit comm:un") and accidents to workers, and another
group for insurance against fire and ex-plosions. Membership'in either
group was conditional upon the approval of the Secretary of State for
Finance,'whowas authorized to liquidate a part or all of the group
and ,to review the general terms .of policies issued by the members. A
representative of ' the government was to be present at all meetings and
COuld veuo any decisions of the Boards of Directors of the two gr0ups.
On September 26,1942, a decree was issued regulating the
the qualifications of all insurance employees, agents and salesmen
connected with the presentation of 'policies, prospectuses and. other
insurance information to the public. Its effect was to re
strict such persormee to individuals approved by the Committee of
Organization. '
The Committee of Organization proceeded shortly to the setting
of minimum. tariffs, for which it instituted a special Tariff Committee.
Marine and fire insurance was first affected in this respect byregu- ,
lations issued in the surmnerof 1941. A, decree of September 15,1941 .
put into force obligatory minimum tariff ratings to be determined by the
Tariff Co:rmn.ittee and ordered a 25 per cent surcharge on premiums, but
for companies which had operated in France less than three years the sur
charge was to be only 15 per cent and for companies which 1;J.adtaken ove'r
the portfolios of withdrawn insurers the s'UXchargewas only 10 percent.
Y Cf. the corresponding legislation on banking and stock e.x:ch8.nges.
- 226
This gave Axis companies a definite competitive advantage over native
firms, while the minimum tariffs practically assured them of operating
in a profitable mar)cet. As of July 1, 1942, the entire tariff struc
ture in effect prior to that date was voided. From then on, companies
were to be authorized to operate in France only after thepre'sentation
of a complete set of tariffsto,and their approval Secretary
of State for Finance, a.nd'the of
A decreewasiasue.don August 17,.1941, relating to the, deposits
a.nd:ese:rve of insurance companies oper
AUgtlst 18, 1941, .limiting to 15 per
.' s'... mortgage.loaIls ,.,on,properties,...
elseWhere than in the Seine Department and in towns of Iess than 5,000
if:lha.bitants .... A.decreeofJune, 22,1948 prescribed indetal1,., the form.
and content of the various statements and records which all insurers
were to submit. to the authorities, and the method of valuation of
assets and reserves.' ,
A law of April 17, 1942 forbade the writing in or else
where on aCCQunt ofaFrenchc6mpany, of any policy
expressed in any other ,than French currency, and directed the con
version to francs of life policies written in foreign money before
the decree was issued.
O;peratlons
In spite of the confusion, the restrictions, and the readjust
which faced French insurance as-a result of the war andoccupa
tion, insurers in France have enjoyed more business than ever since'
1939. In the first ten IIi.ontheof the war the field of personal ac
cidents suffered most,as the accident insurance policies of men
were allowed to lapse. Workmen's compensation business
increased as industrial payrolls rose and asa result of the higher
premiums agreed upon in 1939. Following the armistice in 1940, in
come of French insurers continued to .rise, partly as a of the
withdrawal of the British companies, but more as a result of the
internal depreciation of the franc, the rising of tariffs) the high
premiums for war risk coverage, and the virtual, "flight "into life
.insurance for want of other investment opport1lllities. The rapid
rise in the general level created a precarious situation for
many insured and beneficiaries as coverage became insufficient.
Generally speaking, during the occupation, French in
surancecompanieswere atfirst,.repdrted to be paying high dividends
as'a result ofundercapitalizailon, but that ,period has been suc
ceeded by one ofgenera.l .,andspectacularcapital ,increases , not
merely by the small 'companies which had to bring ,their capital 'up
to thelega! minimum, but by the largest companies as well. After
the war, when figures are a.Sain available, ltw1l1 probably be
found FreIichineurers of the +ncorporatedtype will have
a capItal from three to five times what it was in 1938.
- 227
There is no information as to whether the Germans have taken advantage
of these capital increases to acquire direct participation in and con
trol of the French companies concerned. Many of the latter had exten
sive hidden'reserves through long-stancl.j,ng ullderval.uation of assets,
so that the capital increases may- merely have taken the form of reval
uation of assets and capitalization of the resulting reserves.
9. Stock Exchanges'
With the occupation?fFrancelnJune 1940, the. Paris. Bour.se was.
c+osed.... .1940
...'but."p,qt .. .. .. ;tl:1,e.
.Du:ringmos:tof the period in which the Paris
exchange. was elosed, trading in the principal issues ,?fthat,axcbange
went on in theunoccupieda:rea, .' notably on' the Lyons, Bou,rse which ,had
reopened for share 'trading on August 27,1940. Moreover,whilethe
Paris Bourse was closed, a very substantial black market in i t;ssacu
ritiesdeveloped in the occupied zone; one of the reasons for reopening
the Bourse was to bring this businesS back into the open wh.eJ:"e ,it..-could
be properly controUed. Howeve:r:,. as a result qf the severe:measure.s
against stock exchange speculation taken by the Vichy Government,
part of its counter-inf'lationary campaign. (PI'. 195-6), the ,bla.Uk::mar
ket continued and it proved necessary drastically to revise the organ
ization of securities trading in order to bring all transactions under.
official scrutiny.
Ohe of the factors which led to the easy evasion of restrictioIlS
on share trading was the fa.ct that securities were pra.ctically all in
bearer form. so that changes in ownership did not have to be offic'ially
recorded. Accordingly, be.fore the Parquet reopened in Paris it was
provided by. the law of February 28; that sellers on the "Bourse
were to deliver their seCur1.ties, and buyers were to receive their
securities, only in registered form. or, alternatively, the secu
rities were to be on deposit with a bank or broker. At the same time,
asa means of policing off the Bourse, it was
that no sale of securities:offered in an Exchange could be effected
without the intervention of a gove:rnm.entofficial, an agent de cha:p.ge,
ora speciallya.:uthorized institution gj . /
Several months later, in September 1941', an officialinstitution-
Caisse Centrale dt? et de Vireme:q.ts de Titres--was set up to
faeilitate and improve the Government 's c.ontrol over transactions in
Bourse secu:rities. This institution had two related fuctions: itre-'
" tained actual possession of all securities sold on,_ the Bourse, issuing
Y Foreign. securities, ands'ecurities of French companies operating
abroad. were not restored to the Parquet list, although they, were
traded e:x;tensively off the Parquet and at Lyons.
Y The same law. ruled that thenceforth new shares of French corpora
tions could be is.suedonly in 'registeredforin.
- 228
merely certificates, of deposit to buyers; and it registered the changes
in ownership resulting from Bourse trades.
By the end of 1941, numerous loopholes in the system of control had
become obvious. For example, although private trades in listed securi
ties had to he cleared through the authorities, such trades were not
subject to price limitations. As a result, transactions were effected
in large volume off the exchange at levels of as much as 25 per cent
above the official quotations." Accordingly, .in December 1941, a decree
was issued providing that no sales in such securities were to be ap
proved by a broker unless the price was within the range recorded on
the B01ll'sein the three-day period prior to the private sale and unless
the transaction was between the true buyer and seller; ,exemptions were
made> for transactions involving the sale of a con,trolling interest in a
'corPoratiOn.' During the same month, the agents de change were prohib
i ted' fromy6rossing" , their customers I buying and selling orders in their
own offices and were reqUired to place all order.s on the Bourse.
As the controls on trading in Bourse securi"tieswere i.m-proved,
business apparently was driven more and more into the 1 ~ s 8 well regu
lated area.s. By a,law of March 1943, many of these areas were flnally
puturidercontrol. All bearer certificates still outstanding in listed
issues'were called in for registration and deposit with the Caisse Cen
trale. Moreover, the prohibition against trading in bearer shares was
extended from listed securities to all securities. Finally, all trans
actions in unlisted shares had to be registered with a bank.y
Reorganiza,tion of stock exchanges
On February 14, 1942, a new law was issued setting up an official
Comm..tttee of Stock Exchanges with, broad powers over all organized secu
rity markets, including not only the "parquets" but also the "coulisses".
This law formed part of the Vichy'legislationestablishing a "directed"
economy.
The Committee is 'composed of the following mempers: the Governor
or one of the Vice-Governors of the Bank of France (President); the
Syndic (President) of the Compagnie des Agents de Change of Paris
(Vice-President); a'representative of the Committee of Profiessional
Banking Organization (see p. '198),appointed by the Secretary of State
for Finance; and a representative of French security holders also ap
poirJ,ted by the saine Secretary' . The Director of the Treasury represents
the Government at meetings oftheComn;J.ission. The, functions of the Gom'"
mittee are'outlinedby the law in verf broad terms; it >is.competent on
all questions of ,a general character concerning security markets and is
to decide all questions of individual character assigned to it by the
laws and regulations. Decisions of a general character are final only
after approval--explicit or implicit--bythe Secreta:ty of State for
, "
'Y
The text of this law is not available. 'rhe analysis is based upon
press reports somewhat lacking in precision.
- 229
Finance, while decisions of an individual character may be appealed by
the interested parties to the Controlling Commission for banking (see
p. 199). Y
The old division of French security market? Into the "parquets"
and, "coulisses" is maintained. No changes are made in the flIDctions
of the Uparquets" except that theChambre Syndicale -des Agents de
Change must be assIsted by a government commissioner in.deciding upon
the listing of new'securities. The law contains several provIsions
indicating that the. Government intended to "rationalize" the stock
exchange organization by expanding Bourses and closing others.
Thus it was provided that when a new "office" (seat) is established
the new appointee must pay to the general flIDd of the "Compagnie"
the, price of his seat, as fixed by the .Comrnittee of Stock Exchap.ges.
On the other hand the agents de change of ,a closed Bourse are eIl
titled' to compens?-tion to be provided by the other
from. the closing or, eventually, by the Trea.,sury. Ye,,";;'
The "coulisses" are organized by the law on a. patternverys-im.
ilar to the "parquets". The "coulissiers",henceforthcall
f3
d
tiers en valeurs mobilieres" (Brokers in securities), are granteti a
monoply for trading in s.ecurfties not listed on the parquets. Tb:e
courtiers are by the Committee of Stock Exchanges up a
number established for each Exchange by the Secretary..Qf State for
Financej'each broker must deposit a bond guaranteeing his
'ties toward his customers; and a common guarantee- flIDd bad also to
be established. listing of securities on the coulissesmust<be
approved bya government commissioner. On October 5, 1942 the
Coulisse of the Paris 'Bourse, or.rather the Chambre des Courtiers,
began to function according to the new regulations. The number of
brokers was reduced from 52 to 40. 'The .minimum working capital of
each courtier was fixed at 2.5 million francs and the amolIDt of_the
collective flIDd at 10 miliion---francs.
In order to restri,ct trading outside the Bourses,.the law of
February 14, 1942 also prohi1>1ted the publication of any security
. quotations other tha.n those established by the agents de change or
the,courtiers en valeu.ra m.obiliers.
!I_It should be noted that both 'the Stock Exchange Committee and
the Controlling Cammissionfor banking are presided over by the
Governor of the :Bank of France, and subject to the final author
ity of the State Secretary for Finance.
gj Cf'. the analogous, rulings in the law regulating the banking
organization (above p. 199).
NAT ION: AL GOV ERN, ME NT "Q:F, FRAN"CE
THI ROREPUBLIC VICHY REGIME
f\)
\.N
..0
HEAD OF STATE
MARSHAL PETAIN
COUNCIL
OF
MINISTERS
REAL POLITICAL
EXECUTIVE
APPOINTS
PARl.:.IAMENT
HEAD OF'
GOVERNMENT
DRAWN IN ';EO"f<t.f'hY GIVI:,:ON,O, 5,5
...
o
w
..J
W
HEAD OF
STATE
(FORMAL)
",,---...,
(
IPRESIDENT\ APPOINTS
OF ,1----:.:0..:..:::.:=.:::..--....,
\ REPUBLICj
' ~ ....__.....
NO 613
JUNE 26, 1942
.. 231
CONt1MIC Rfl..)!ONS
'
, [)''1'0rtm''lltol I-lHI Ihl'l rv
@ Admrrllstrllti\, ('('Ill/.. -
(1""llI'l'r (If (,
Economic '
reglOna
- 232 ...
d.

- tu3i,!f1al 'boundary
- Orportmmhll Nundo')'
200Kms.
Reg10nal division, 1941
The of France
except Corsica
- 233
I N D E X
Centrale des
Reicbkreditkassen . . 183
Anglo-French Monetary
Agreement .
177
Anti-inflation laws
194, 195
Association Financiere
Ie Commerce
.et 11 Industrie . . 107
Bank depoeits . 15, 18, 22
Bank failures 221
Bank of France. v, vi, xi, xii,
12, 146, 172, 175
annual report-of. . 38
assets of . '. 39 - 42
branches of 28
changes by VichYGovt .188, 190
control of. 1, 22
dividends of 28 '
establishment of 1
General Council of 25, 26
32, 35, 61
General Meeting of. - 25
Gold reserve
29, 39, 179
Governor of 27, 32,
loans to the Govt .. 1, 24, 29,
38
note circulation 178
to the state . 29
1lllder ,the Occupa.:tion 186
weekly balance 'sheet of . 38,
179, 189
Banking,
French, organization of
Banking enterprises,
sale of to German
interests
179
Banking. hquses ,
private
viii, 3
Banking legislation xil, 43, 199
Banks,
acitvity of under the
Occupation 211, 212, 213
bPlsiness
see: :Banquea d'affaires
:Banks;
,centralization ,of.' e- vii
colonial ix, 120
financial services of to
security issuers 60
Banks,
Foreign in France 120, 127
Franco-foreign 122 - 126
French, assets and
liabilitieff 46 - 48
xiii,
215
local ix, 8,108, 113
principal of 208, 209
. regional ix, 7, 8, lOS,
113, 180
special ix, ,113
see also: People's Banks)
Savi:ngs Banks
Banks for, Industrial Loans 105
Banks of in'French
Colonies ,120, 122
Banque Adam. 19
Banque Contonniere ' 118
Banques d'affaires ix, xiii,
3, 5, 6, 7,. 91
Banques des Produits
taires et Coloniaux .119
Banque d'Alsaceet de
Lorraine.
19
Banque-d
l
Athenes
61
Banque de l'UhlonParisienne ix,
7
history of 99'- 101
, :Banque de Paris et des
Pays Bas ix, 7, , 17, '66, 67
Bd. of Directors of 99
history of- .93- 100
Banq1i.es des Pays de 1
1
Europe
Centrale .104
Banque des Pays du Nord 104, 213
Banque Francaise
d
l
Acceptationa. 18, 116
BanqueFranco-Chinoise
66
BanqueGenerale :pour
l
1
Industrie Electrlque . 18
BanqueBjpothecaire Franco-
Argentine 61, 64, 66
Banque Nationale de .
Credit.. 10, 16, 21
Banque Francaise
pour le Commerce
Exterior .18,' 114, 220
- 234
I N D E X
Banque Nationale pour Ie Com- Citroen et Cie 86
merce et l'Industr::t.e viii, 68, portfolio 51
211, 212 Commission Superieure de
(known as: mCl) l'Epargne 130
BNCl, Compagnie Algerienne
110
Bd. of Directors 88 'Compagnie d f Assurance
History of 85'- 89
Generales .159, 160
Banque Ottomane
, 61, 64
Compagnie d'Assurances
Banque Oustric
19 Generales des Accidents 162
Banque 'I'ransatlantique 103, 213 Compagnie des Agents de .Change
Banquiers :excOID.pteurs.
3
see: Parquet
Bizot . 27
Cie. Parisienne de
de Bolsanger
27
Reescompte 117
BontollX erisl;s.
5
Comptoir dfEscompte v, Viii, 4,
Boudoin, .;:paul 214
,17, 20, 68
Bourse ..
. 165, .227 Bd.. of Directors
'77
see also: Parquet History of .
75- 78
Brincard, Baron Comptoir Lyon-Allemand 20
Business banks Controlling Commission .
201
see: Banques d'affaires Cooperative credit
152
Caisses agricoles. 145 Cooperative credit,
CaisseAutonome dfAmortissement agricultural .145- 147
. x, 34,138
Coulisse xi, xiV, 51, 165, 173
Caisse Centrale de Credit Syndicat of . 173
Cooperatif Credit
Caisse Centrale de Depots et see': Cooperative Credit
de Virements de Titres 224 Credit Commercial viii, 11
Caisse Centrale de Reescompte
117 16, 68
Caisse General de I
f
Industri6 Bd. of Directors '
90
et .dti:i3at:i.IrLent 144 History of . 89 - 91
Caisse Centrale des Banques Credit du Nord ix, '17
Populalres 149 History of
109
Caisse des Depots-et Consignations Credit Foncier . x, x,iii. 34
ix, x, 2}, 35,50, 56, 128, 131, .141 - 143, 212
134 -137,147, 154
Credit institutions, r
Caisse Centrale du Credit
public . . .ix, xiii
Hotelier 151
Credit Industriel v, viii, ix
Caisse Nationale de Credit 4, 17, 213
Agricole 'x, 145, 146/219
Bd. of Directors 85
Nationale de Creditaux
History of . 82 - 86
Departmentset aux'Cammunes 139
Credit Industriel,
Caisse Nationale des Marches de
Regional Babks affiliated
1fEtat xii.i, 139, 221
with . '
1I
111,112
Capital funds, . . Credit Lyonnais v, .v1ii, 4
increases of 207
J.7" 20,50,- 54, 60, 68, 210,.212
Cash reserves; Bd. of Directors'. 74
of banks 50 History of . 72 - 75
Chambre Syndiqate. . 149, 168
Credit Mobilier 3,,4, 6, 7, 100
- 235
INDEX
7
Credit National x, xiii, 24, 34, 68,
,218
Credit Sucrier etCommercial 119
C"Urrency,
depreciation of. v
Customer accounts,
guarantee of by banks
60
David-Weill .
IDeGaulle Commdttee
65
.176
Demachy .
6l
Demachy,
invest,ments of .
64
Demarcheurs . .59
Deposit Banks viii, Xlll,5 7, 10,
3.5,59,
'of
69
earning assets. of 71
the six large .72
Deposits,
expansion of .203
in savings institutions. .216
of leading banks .205
see also:- Security deposits
Depreciation,
see: Currenoy; Franc
DeschaJD;P, J.
85
Discount market,
private. . 54
Dreyfus et Cie, Daniel 67
d 'Eichtal ' .,' 3, 63
Etab1issements de oredit. v, viii,
4, 6, 16, 21, 68, 180
'Exchange Stabilization Fund vi, 13,
14, 176
Extra-Parliamentary Cormnission for
Banking Reform 8
Federation Francaise desSooietes
d 'Assurances -'\ .158
Fonds de Soutien'des Rentes. .138
Foreign exchange market,
speculation in
57
Foreign exchange transactions
.175
Foreign securities,
flotation Of
5
Fournier, M. Pierre
27
Franc,'
depreciation of .- .192
devaluati6hOf .
vi, 14
- 236'
INDEX
Insurance companies, x, xiii
war measures 221
war risk coverage 222
foreign
164, 165
government regulation of
153, 155,' 157
income of 160
investment of funds . 158
mutual . 154
non-lif.e.
162, 163
types of.
153
Interest rates viii, 49, 2
Investments, of banks. 52
53
Jewish firms,
Aryanization of 214
Latin Monetary Union . 2
Laval, Pierre 213 co,
Lazard Freres et Cie viii, xiii,
61, 65, 214
Lehideux et Cie 68, 74
Loans, between banks 54
from banks 51, 52
from banks for speculation
56, 57
Louis-Dreyf'us .et Cie
67
Lubersac, Raoul de
67
Mallet,Freres
.3, 25, 61
inve.stments of 64
Marche Hers-Cote
x, 165 174
Market, see:
Foreign exchange market
Parquet
Parquet, term market on
Discount market
Mayer, M. Hen.e 62
Mi:r-abaud
.3, 25, 61
in'tTE)stments of
63
Money,metal'iic, in circulation
30
Money,. see:
Cash ,reserves
. Currency
GOld reserve
Hoarding
Investm.en.ts
Note circu.lation
Occupation currency .
Moreau, E. "
98
Morgan and Co.
12, 66
Mortgages ...
..
140, 141
Mouvement General des Fonds 27
Napoleon Bonaparte. .1
Nationale Compagnie d'Assurance
sur Vie . 159, 161
de Neuflize" 3, 25, 61, 160
investments of 65
Note circulation,
expansion of 191
Occupation costs xi, 182, 183, 17
Occupation currency, German 181
Odier, Bungener et cie. 67
Office des Changes. 175
Office des Chequas 140
Office Publics d'Habitation 145
Omnium Financier oour
L'Industrie' Nationals
(CFLMA) ix, 17, 73, 77, 106
Oppenkeim.. 3
Parquet x, xiv, 57, 165, 171,227
financing term transactions
on 172
government of. 168
membership on. 166
securities admitted 168
settling transactions on
'171
trading on 169
term market on.
170
Pawn shops. 152
"Pensions".
55,.56
People's banks 149, 150, 151, 220
Pereire brother,s
3
Permanent Committee! of
Professional. Organization
201
Poincare 11
Postal savings System x, xiii,
24, 133, 134
Public Credit 128,
for Special Economic
. Groups . 140,' 147
Public deb-t, 9
Reichkreditkassen. 181, 187
see also: Administration
Cen.trale des
Reichkreditkassen'
Rothschild Freres 3,
.25,- 61
investments of 62
- 237
INDEX
Royal Dutch 66
Rueff, M. Jacques ' 27
ste. Financiere d'Enterprises en
'Chine 66
ste. Francaise de Reports et
Depot .' . 113
Ste. 'Genera1e ,A1sacieDne de
Banque. 110
Savings :Banks 128 - 132
Schaer-fer, Dr. Carl. 181
Schneider-Oreusot '0 17, 64" 7
4
, 213
Second Empire
.3, 4
Securities,
'role of banks in issue of 58,59
see also: Foreign securities
Security deposits 60
Seligman etCie. 68
Siegfried, G.
91
Simon, J. 80
Sinistres 147, 148
Societe Centrale des Banques de
Province .7, 8
Societes de Credit
see: Etablissements de Credit
Societe Anonyme de Credit a
l'Industrie Francaise
, ix, 17, 106
Societe Francaise de Reports et de
62
v, viii, 6, 7, 17,
20, 68, 210
Bd. of Directors 80
'History of. . 78, 182
Societe Maraei11aise du Credit Ind
ustriel 'etCommercia1. 109
So'oieteJ?rivet de Reescompte 214
86
11
8'-Qorii;pto1rdes Entrepreneurs
, ' xiii, 143, 219
oontro1 196 - 199
State Credit; see:'
Publio Oredit Institutions
des Depots et
oonSigna.tions
sternet 'J 67
x, xiv, 227 229
seeala;6: Parquet
stodkExalJaogea,.
Oontl:iIi:tt'e'e of .0 xiv
.24-8887.3-800
Syndicat d'etudes . 58
Thelier, H. . 85
Union Bancaire du Nord 17, 107
Union des Banques Regionales
pour Ie Credit
Industriale .107
Union Centrale de Nantes .146
Union Com;pagnie d'Assurance
sur 1a 'Vie. . 159, 160
Union des Mines. 17
History of 102, 103, 212
Union European Industrie11e
et Financiere. .18, 213
Union Genera1e 4
Union Industrie11e de Credit
a'l
t
Industrie Nationa1e
(UCINA) ix, 17, 73, 77,
106
Vernes .
3, 25, 61, 65
Viohy Government .182
see also:
Insuranoe, Vichy
1egis'lature of
Speoulation, control of
War risk coverage, see:
Insurance
Workmen IS Compensation Law
Worms et Cie