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

The history of banking crises deals with underestimated risks and overestimated opportunities. The banking crisis in the Russian Empire in the 1880s could not be clearly explained for a long time in such a paradigm, because quantitative data on the operations of urban public banks and mutual credit societies were severely lacking for this. In this study, such gaps were filled, as a result, questions about unjustified credit risk, weak financial stability, belated banking regulation and supervision, as well as regional economic cataclysms that aggravated the difficult situation of banks came to the fore.

The focus of our attention is the city's public banks and mutual credit societies. They can be conditionally defined as commercial banks of inactive forms of ownership. For the 19th century, commercial banking is a loan and services for entrepreneurs, firms and companies, as well as for holders of securities in combination with deposits and transfers for the wider public. In mutual credit societies, only their members who assumed responsibility for the obligations of the companies could be credited, whereas any persons could be depositors. City public banks were accountable to city councils and gave part of the profits to city projects. In addition to the commercial banking prevailing in their operations, these banks could provide mortgage and pawnshop (secured by things) loans. In our study, these forms of credit institutions are compared with more powerful joint-stock commercial banks.

In the 1880s. The Russian Empire suffered from the most serious banking crisis in 1860-1913 . The term "crisis" is applied to the most difficult period of 1882-1889, when 49 city public banks and 13 mutual credit societies closed. However, the 1880s were part of a long depression, a worldwide period of poor economic conditions. For the banking system of the Russian Empire, the long depression lasted from 1875 to about 1893-1895, so our calculations use time series for 1875-1895. Credit institutions left the market during this period: 60 out of 294 city banks and 24 out of 119 mutual credit societies. Joint-stock commercial banks suffered earlier, in the second half of the 1870s, it was another crisis that is not the subject of our study ^{[3, pp. 37-72]}.

The problems of urban banks in the 1880s are known in the scientific literature. A. N. Guryev wrote in 1904 that due to the imperfection of legislation and control, these banks completely departed from "their direct purpose" - to lend to trade and industry in the area around the city ^{[4, pp. 198-199]}. The results of studying this topic in Soviet historiography can be summarized with a quote by I. F. Gindin: "The prolonged depression of the 1880s, the renewed growth of joint-stock banks and the undermining of depositors' trust in city banks as a result of the uncontrolled management of dark businessmen in individual banks dealt a decisive blow to city banks" ^{[3, p. 45]}. In modern research, A. K. Kirillov added to this the strengthening of state regulation as a reason for the compression of the system of city banks after the crisis ^{[7, pp. 54-76] [8]}. His works analyze the reports of urban banks in Western Siberia, among which there were no bankrupts, nevertheless, the author showed at the micro level the process of reducing the assets of banks located far from the epicenter of the crisis, which, as shown in our work, was in the Central Chernozem region. The article by S. A. Salomatina and A. B. Bozhinov proves the weak financial stability of city banks on the eve of the crisis and its noticeable strengthening subsequently as a result of state regulation and supervision measures ^[16]. The basis of calculations for this conclusion were the pre - revolutionary statistical reports for January 1 , 1882 and 1895 . This article also contains an overview of the modern historiography of urban public banks, from which it follows that the crisis of the 1880s lacked nationwide generalizations on statistical data ^{[16, pp. 176-178]}. Based on the above, the emergence of new data should lead to clarification of the causes and consequences of the crisis.

As noted above, the study of the crisis was hampered by the lack of reports on the operations of all city banks and mutual credit societies for 1883-1894, as well as a list of closed institutions. This problem is solved in our study, for which a new set of data for 1875-1895 was created, which takes into account the assets of all these institutions, and also records all the facts of their withdrawal from the market. A list of the sources of this data collection is provided in the appendix.

According to these new data, there are significant differences in the dynamics of urban banks in comparison with mutual credit companies and joint-stock banks. This difference made the issue of institutional changes in the system of city banks in connection with the crisis a priority. Our study proves that unreliable loans, unstable financial situation, lack of sufficient control by both cities and the Ministry of Finance led to this crisis. Troubled banks closed down in the crisis. For the rest, regulatory and supervisory measures have been strengthened. As a result, the assets of city banks have significantly decreased. Limiting the risk in city banks was necessary to protect the financial interests of the city government, to which these banks were subordinate.

However, the crisis of the 1880s turned out to have a strong regional aspect, because most of the bankruptcies occurred in the Central Chernozem region. In our study, this is explained by the expansion in the 1870s of the economy of agricultural exports by rail to the west, and then a sharp contraction of this sector in the early 1880s due to the global crisis of agricultural prices and the occurrence of local crop failures.

In addition to statistics, legislation is used as sources of information about risk, regulation and supervision, as well as materials of bank audits by the Ministry of Finance, which are greatly underestimated in historiography ^{[18, pp. 123-139]}, although A. N. Guryev wrote about them in 1904 ^{[4, pp. 201-202]} As a historical narrative is used the text of Pyotr Cherkasov, the founder of the small stable Solikamsk city public Bank in Perm province, who on the eve of the crisis, in May 1882, advocated strengthening control and supervision, and proposed tougher measures than were eventually applied ^[20]. However, it is worth noting that criticism of the regulation of city banks has been published before ^{[9, pp. 105-115]}. Cherkasov was opposed by the author of another narrative, the economist Vlasy Sudeikin, who in 1884 suggested that the city banks were legally "strangled" ^{[19, pp. 43-48]}. However, the problem with this narrative is that similar measures were applied to joint-stock commercial banks, whose operations grew in the 1880s. As an example of pre-crisis credit risk in the absence of control, the story of the collapse of the Skopinsky city Public Bank in October 1882 was used according to the modern text of A.V. Belyakov, in which it is set out according to the published investigative case, memoirs and archival documents ^[2]. Another story of the collapse, the second largest asset of the Orel city Public Bank in June 1884, was told in 1888 on behalf of the Orel mayor Dmitry Volkov and two duma vowels, when they tried to get a government loan to sort out the debts of the city and the bank ^[14].

To explain the regional aspects of the crisis, the materials of our previous articles were used, in which statistics from the reports of the Orel Commercial Bank and the State Bank of the Russian Empire (hereinafter — the State Bank) on branches in Orel and Yelets are compared with historical narratives about the regional economic situation ^{[15] [17]}. Such narratives include fragments from the reports of the Oryol governors, reviews of the Ministry of Agriculture and State Property ("... a year in agricultural terms according to the answers received from the owners"), zemstvo publications and some other texts.

The article has the following structure: the first section analyzes the dynamics of credit institutions of various types for 1875-1895, the second section examines the problem of excessive credit risk in urban public banks, the third section shows how banking regulation and supervision were aimed at reducing this risk, the fourth section presents the regional aspect of the crisis. The appendix summarizes the methodology for collecting data for the study and provides a list of sources used for this purpose.

Thus, filling in the gaps in quantitative data on urban public banks and mutual credit societies leads to the need to take a fresh look at the well-known historiographical plot and revise the established estimates. Dynamics of credit institutions in 1875-1895

During the long depression, the phases and depth of crises of credit institutions of different types — urban public banks, mutual credit societies and joint-stock commercial banks - did not coincide much.

This follows from the analysis of the dynamics of these institutions over 20 years (from January 1, 1875 to January 1, 1895), presented in this section. The focus is on three issues: when the number of institutions decreased, when their assets fell (the volume of transactions in general) and, more narrowly, when there was an outflow of deposits from them.

Figure 1 shows the number of credit institutions. City public banks are displayed on the right scale, because there were 2-3 times more of them. Joint-stock banks are represented by the sum of boards (main offices) and branches, their number fell in 1875-1881, then grew very slowly, and since 1894 a rapid expansion of regional branch networks began. A completely different trend is observed in urban public banks and mutual credit societies. Their growth, albeit with plateau periods, continued until 1883, then the number of city banks declined rapidly until 1889, after which this process slowed down. The number of mutual credit societies decreased very gradually.

If we compare the scale of losses, 19 out of 88 divisions of joint-stock banks were lost. As already mentioned, 60 out of 294 city banks left the market for the entire period, 49 of them in 1882-1889. Out of 119 mutual credit societies, 24 were lost, 13 of them in 1882-1889. Thus, during the entire long depression, the number of institutions of various types decreased by 20-22%.

Figure 1. The number of banks of different types in 1875-1895.
Note: for joint-stock commercial banks, the total number of boards (main offices) and branches is shown.
Sources: a database created by the author based on the sources specified in the Appendix.Figure 2 shows the dynamics of total assets.

This amount of liabilities to the bank (assets) or the bank (liabilities) is the most generalized indicator of the scale of its operations. However, now the assets of joint-stock banks are shown on the right scale, which were 2-3 times higher than the assets of other institutions.

The operations of joint-stock banks fell by an average of 5% per year in 1875-1880, this was their crisis, the bottom of which fell in 1880-1881, then in the 1880s there was an average growth of 3% per year, and in the first half of the 1890s - 9%. There has been no growth in mutual credit societies for all 20 years, but the situation was the worst in 1884-1886 (-4% per year) and in 1894 (-12%). City public banks in 1875-1882 grew by an average of 7% per year, then for seven years (1883-1889) fell by an average of 7%, and in the 1890s their assets remained at the same level. It turns out that the deepest and longest recession was in the system of city banks.

Figure 3 shows the dynamics of deposits (deposits and current accounts of all types), with joint-stock banks again placed on the right scale due to the large volume of transactions. Changes in the amount of deposits help to assess the level of confidence in the banking system: a decrease in confidence means withdrawal of deposits.

Figure 2. Assets of different types of banks in 1875-1895.
Sources: see sources to Figure 1.Figure 3. Deposits of different types of banks in 1875-1895.

 

Sources: see sources to Figure 1.

The deposit operation of joint-stock banks was much less stable than the assets in Figure 2. However, if we highlight trends, deposits fell by an average of 5% per year until 1880, and then grew with fluctuations by an average of 3% per year. Deposits in mutual credit societies did not have an upward trend. However, these two series have a high positive correlation of 0.77 with an error probability of less than 1%, calculated from annual increments to exclude the trend. This correlation means that fluctuations in deposits in banks of different types depended on the general situation in the economy: during unfavorable periods, deposits were withdrawn everywhere, during periods of improvement, on the contrary, they were received. The dynamics of deposits in urban banks, on the contrary, did not correlate in any way with other credit institutions, and hence with the market as a whole. Until 1882 there was an average growth of 7% per year, then until 1890 there was an average decline of 8%, and in the 1890s deposits remained at the same level.

The compression of urban banks can be considered in more detail and in comparison with mutual credit societies. In table 1, assets as of January 1, 1882 and 1890 are shown separately for closed, surviving and new institutions. In 1882, the assets of all city banks amounted to 231.6 million rubles, of which the assets of banks that went bankrupt by 1890 amounted to 51.3 million rubles (-22.1%). The assets of the banks that survived by 1890 shrank by 54.5 million rubles (-23.5%). Thus, only 54.3% of the assets of 1882 remained by 1890. The assets of the new banks amounted to 2.1 million rubles. The total amount of assets by 1890 was 127.9 million rubles. It turns out that the city banks lost almost half of their assets equally due to the withdrawal of banks from the market and due to the compression of the remaining ones.

Table 1. Changes in assets of city public banks and mutual credit societies from January 1, 1882 to January 1, 1890Assets

Calculated by: see sources to Figure 1.

The situation with mutual credit societies was clearly better. As of January 1, 1882, their assets amounted to 173.8 million rubles, of which 10.5 million rubles accounted for closed companies (-6%). The surviving companies did not reduce, on the contrary, slightly increased assets (by 3 million rubles, +1.7%). 95.7% of the assets of 1882 remained by 1890, i.e. the reduction was minimal; 1.4 million rubles were added at the expense of new companies, and the total amount for 1890 was 167.8 million rubles.

As a result, the long depression reduced the number of banks of all types by about 20-22%. The crisis of joint-stock banks was limited to 1875-1881, then they grew, gradually accelerating. Mutual credit societies did not particularly increase operations, but they did not significantly reduce them all 20 years, this is the depression. City banks only after 1882 began to close, shrink in assets and lose deposits. This process was most pronounced in 1882-1889, after which it almost completely slowed down. This dynamic suggests that it was caused by institutional changes in the system of city banks, this issue is discussed further.

Credit risk in the system of city banksIn this section, many well-known facts from the history of urban banks are reinterpreted from the point of view of the increased credit risk that spread through these banks before the crisis.

Weak legislative regulation and lack of control made it possible for city banks to conduct risky operations since 1862 in the sense that depositors' money was placed in loans that are unlikely to be repaid. The question was when confidence in banks would fall so much that the demand for deposits would exceed the influx of new deposits, or the absence of customer payments on overdue loans would lead to the fact that the bank's cash register would be empty, which is bankruptcy. Signals that there was something wrong with the loan portfolios of city public banks were received in the 1870s. However, the tension with cash began to be felt only in the early 1880s, and the crisis became a matter of not very distant time.

The historical context of the concepts of "excess risk" and "lack of control" is most easily illustrated by the two largest and most resonant bankruptcies of those years in Skopin and in Orel.

The Skopinsky City Public Bank, which since its foundation in 1863 was headed by director Ivan Gavrilovich Rykov (1831-1897), burst in October 1882. The facts revealed during the criminal investigation shocked contemporaries, reflected in fiction, and even now are often mentioned in a popular scientific context. Let's try to look at risk and control in this case through the history systematized by A.V. Belyakov ^[2].

The risk in the Skopin history consisted primarily in the fact that huge deposits obviously could not be profitably placed in loans that would bring the bank income. The bank was constantly busy attracting new depositors, and all over the country, due to increased interest rates and advertising in newspapers. By January 1, 1882, the bank of the small county town of Skopin "swelled" to the size of St. Petersburg and Moscow joint-stock commercial banks, being the largest city bank in the country (assets of 13.4 million rubles) ^{[6, 110-111, 246-247]}. The money of the depositors of the Skopin Bank was used for concessional lending to persons close to the bank or useful to it at the level of the city, province and beyond, as well as for the numerous needs of the city of Skopin and its residents. With such a free approach to lending, systematic non-repayment and rewriting of a significant part of loans for new terms were commonplace. The bank existed as long as it managed to attract new deposits.

There was no control over the activities of the management of the Skopinsky Bank. Since the real model of the bank's operations did not imply profit, the reporting had to be falsified. The leadership of both the city and the province looked at it through their fingers, largely because they themselves owed the bank significant sums. Bank employees also participated in this scheme because they received high salaries and preferential loans. This scheme as a whole was beneficial to many in one way or another, because the bank invested in urban improvement and charitable projects, and the influx of money was, in principle, favorable for the city and its economy.

How long could such a bank last? There are signs that the Skopinsky Bank has been operating in this mode for quite a long time — about fifteen years. The increase in interest on deposits began in 1867, when a more accommodating mayor came. Requirements for checking the bank's operations have been received since 1869. Notes in the press hinting at trouble appeared in the 1870s. However, the excess of outflow over the inflow of deposits became stable only in 1882 . The criminal case was opened on September 22, and bankruptcy was declared on October 12.

Another major bankruptcy with criminal consequences befell the Oryol city Public Bank, which also operated since 1863. However, here we are talking about the bank of the provincial center, and not the county, like Skopin. In terms of assets, as of January 1, 1882, the bank in Orel was the fourth city bank (6.5 million rubles) ^{[6, pp. 244-245]}. Bankruptcy was declared on June 27 , 1884 . The story of the collapse was told in March 1888 on behalf of the mayor Dmitry Volkov and two vowels of the Duma, when the scale of the problems that befell the city was already clear, but it was still unclear how they would eventually be resolved ^{[14, p. 5-10]}.

It is noteworthy that in this story the emphasis is on a large number of unreliable loans in the bank's portfolio, i.e. it is about risk. The director of the bank, Ivan Alekseevich Avilov, a merchant and honorary citizen of the city of Orel ^{[1, p. 54]}, lent to people close to him, "dragged into the bill operation" those whose creditworthiness was weak. The theme of lack of control sounds very similar to the Skopin story: Avilov "enslaved the board, the majority of the city Duma," because they were all debtors of the bank. As a result, the reports were approved by the Duma without looking. Neither the city authorities nor the auditors appointed by them had access to the bank's list of loan clients.

Since the beginning of the 1880s, rumors began to arise about abuses in the bank and the unreliability of its loan portfolio, then these rumors intensified, confidence in the bank was shaken. The main events of the Orel history unfolded in 1883-1884 . The most independent public Duma began to demand a government audit. Depositors began to panic. There was not enough money in the cash register. The Orel branch of the State Bank began to urgently lend to the city bank, bringing the loan amount to 1.5 million rubles, but this was not enough to extinguish the panic. The Duma fought for the bank as best it could, updated the board, negotiated with the government for a loan of up to 2.5 million rubles, but the bank stopped payments earlier. As a result, the bankruptcy management of the bank's debts was opened simultaneously with the criminal case.

By the beginning of 1888, out of about 5.5 million rubles of the bank's obligations on deposits and current accounts, depositors managed to return 2 million rubles. There were 3.5 million rubles left, about which there was a fear that they would have to be returned at the expense of the city. Moreover, Orel owed the bank 860 thousand rubles on a loan for the construction of two bridges across the Oka and Orlik rivers. In fact, it was about the bankruptcy of the Eagle, which formally could not happen, however, debts could "hang" on the city for years, which eventually happened in the Eagle, as, indeed, in Skopin.

To what extent were the stories in Skopin and Orel typical? Of course, there is a uniqueness in the Skopinsky collapse — a bank that has burst too big in a small town. However, to what extent were unreliable loans and lack of control a systemic problem of urban public banks? Pyotr Cherkasov, the founder of Solikamsk City Bank, explained the connection between the increased interest rates on deposits mentioned in the Skopin history and an unreliable loan portfolio ^{[20, p. 14]}. With deposits that are expensive for the bank, you also need to lend at high rates in order to make a profit on the difference between loan income and deposit expenses. Large entrepreneurs with a solid reputation will find a loan at lower rates in State Bank branches or in joint-stock commercial banks, where it was easier for them to get access because of their high status. City banks with expensive deposits will be forced to lend to those who agree to increased credit rates, and this is a clientele with obviously lower solvency.

According to Cherkasov, too conservative, as it will be clear later, the interest on term deposits should not have exceeded 5% ^{[20, p. 27]}. The Committee of Congresses of Joint-stock commercial banks systematized information from annual reports on interest rates on deposits in city public banks on January 1, 1882 ^{[6, pp. 271-280]} They calculated the average annual rates on all deposits (deposits and current accounts, excluding perpetual deposits) as the ratio of accrued interest to the average balance sheet balance. The result turned out to be interesting, even taking into account the imperfection of bank reporting. The vast majority of banks (76%) for which the average annual interest rate could be calculated, it turned out to be more than 5%, i.e. Cherkasov proposed too low a threshold. Nevertheless, this array contains data on 43 banks that closed before 1890. In this group, 18 banks, or 42%, had expensive deposits with a rate of more than 6%. There were much fewer such banks with expensive deposits throughout the system, only 17%. It is noteworthy that among the bankrupts there were almost no banks with cheap deposits with a rate of up to 5%, whereas there were almost a quarter of them, or 24%, throughout the system. Thus, it was often the bankrupt banks that had expensive deposits, although this is clearly not the only reason for their collapse.

Other indirect signs of inflated deposits that could not be reliably invested in loans are the size of bankrupt banks and the scale of compression of surviving banks after they were put in order. In total, from 1878 to 1889, 51 city banks were closed, of which 28 institutions had assets above the median level in 1882 (more than 377 thousand rubles), and this is more than half of all bankrupts (54%). The squeeze on the assets of the surviving banks was also significant. If in 1882 the average bank had assets of 852 thousand rubles (± 1.5 million rubles, standard deviation), by 1890 it was already only 522 thousand rubles (± 921 thousand rubles).

Thus, the combination of expensive liabilities with subprime loans was one of the systemic problems of urban public banks. The question of how this situation became possible is discussed in the next section.

Development of banking regulation and supervisionThis section shows that the real restoration of order in the system of city banks began in 1882, and the legislative norms were then tightened equally for joint-stock and city banks, so the role of legislation in the compression of city banks in the scientific literature is overestimated, while the massive government audits of city banks that began in the same years were completely ignored.

All these measures "pushed" city banks out of the risk area, which caused a significant reduction in the scale of their operations. It was a kind of payment for restoring trust in these banks and increasing the property protection of the cities to which these banks were subordinate. This is described in more detail below. The legislative regulation of mutual credit societies is not considered in our work, because the financial responsibility of their members is subject to other principles.

The issue of strengthening control in the 1880s should be considered primarily in the context of legislative changes. To do this, we need to once again refer to the three main milestones in the regulation of city public banks — the Regulations of 1857 and 1862, as well as the amendments to the Regulations of 1862, adopted in 1883. (The Complete Collection of laws of the Russian Empire (hereinafter — PSZ). II collection No. 31967. Regulations on city Public Banks of June 10, 1857; No. 37950. The Normal Regulation on city Public banks of February 6, 1862; III Sobr. No. 1526. The most highly approved opinion of the State Council "On changing and supplementing the Normal Regulations on City Public Banks" dated April 26, 1883. There are a number of earlier clarifications to the Regulation of 1862: PSZ. II collection No. 43311, 48964, 59676.)

The difference between the provisions of 1857 and 1862 turned out to be significant. In 1857, control was implemented by limiting the operations of city banks, which could accept deposits and lend only in their city at interest rates like those of state credit institutions, the size of loans for merchants of different guilds and for real estate owners were specified in the regulation itself, and profits could go only for the purposes specified in the charter. Thus, the management board could not set at will the region of the bank's activities, interest rates, credit limits and profit distribution.

The regulation of 1862 gave the city banks all the possibilities of a commercial bank of that era in combination with mortgage and pawnshop loans. However, now banks were not limited to their cities, the board could manage interest rates (Articles 32, 46), credit limits, as well as distribute profits at its discretion (Articles 120, 121). The counterbalance to such freedom should have been the responsibility of the bank's management and employees (Articles 8-11), as well as control by the City Duma, primarily through the system of regular reporting (Articles 19-21). The notorious article 25 also appeared, "Deposits entrusted to the bank are secured by the guarantee of the entire city society, which is responsible for the integrity of all the amounts of the bank," however, it was not at all combined with the opportunities to get a loan secured by city real estate in the same bank, besides, it remained unclear which of the citizens should be responsible for what property in in case of bank bankruptcy.

As is already known by the example of the Skopinsky and Oryol banks, the problem turned out to be that representatives of the city government easily became dependent on the bank's management. The influx of deposits over regional opportunities gave the board free funds for this corruption scheme. Moreover, there was no real external control over city banks by the Ministry of Finance ^{[20, pp. 7-8] [19, p. 24]}.

The changes of 1883 strengthened control, and an attempt was also made to deal with the responsibility of cities for the debts of banks. For new banks, article 25 was canceled. The guarantee for deposits was now the bank's own capital and additionally, at will, allocated free city property, operations with which the Minister of Finance had to impose a ban. The old banks could apply for the transition to these new rules (art. 1, note 1, note 2).

The number of bans on simultaneously holding positions in banks and in the city government was increasing, now relatives, as well as representatives of one firm, were also banned. These measures were supposed to make local coalitions around banks less hermetic (Articles 4-6). The same group of rules should include the possibility for the City Duma to establish an accounting committee at the bank to assess the quality of bills accepted for accounting and determine credit limits for customers (the norm of 1879 — PSZ. II collection No. 59676).

Regulations on cash reserves, equity and a loan to one person were introduced or increased. These were classic measures to reduce the risk of banking activity. Reserves (cash and current accounts in the State Bank) had to be at least 10% of the bank's liabilities (Article 22), so that there would always be funds for payments on deposits. The same rule was introduced for joint-stock commercial banks with the explanation that a permanent 10% reserve can only be used for payments on obligations, and not for other operations. However, if this reserve begins to be spent, it must either be replenished quickly, or lending should be reduced (PSZ. III Sobr. No. 1484. St. 3). It followed from this that banks had to keep reserves above 10% in order to be able to conduct other operations. The article by S. A. Salomatina and A. B. Bozhinov analyzes similar coefficients calculated according to the data for January 1, 1882 and 1895, close to modern methods of assessing the financial stability of credit institutions: the share of highly liquid assets (cash, current accounts with other banks and government securities owned by the bank), as well as the ratio of highly liquid assets to current accounts and perpetual deposits close to them in form ^{[16, p. 184-190]}. The results of this analysis show that the reserve rate did not appear by chance, because by 1882 all banks, but especially future bankrupts, kept reserves at an extremely low level, exactly below 10%. Weak reserves could also indicate a poor inflow of funds from lending, which indirectly confirms the hypothesis of subprime loan portfolios of city banks on the eve of the crisis. After the reform, the surviving banks raised their reserves closer to 15%.

Since 1883, control over the sufficiency of the bank's own capital has been strengthened: now the liabilities had to be no more than five times the amount of its fixed and reserve capital (Article 21), whereas earlier — no more than 10 times (PSZ. II of the Collection No. 48964). The same rule was introduced for joint-stock commercial banks (PSB. III Collection No. 1484. St. 4.). The lower the amount of capital relative to deposits, the more the bank depended on the behavior of depositors, who, as a rule, easily succumbed to panic. In terms of a percentage of the amount of assets, the capital under the new rules should have been at least 17%. In 1882, this indicator was lower for future bankrupts, and after the reform, the surviving banks raised this coefficient to an average of more than 30% ^{[16, p. 190-193]}.

Another norm that is often mentioned in historiography is the limitation of credit to one client. For joint—stock banks, the norm was no more than 1/10 of the fixed capital, and for city banks - the fixed and reserve capital combined (PSZ. III Collection No. 1484. St. 6; No. 1526. p. 32). However, this norm is less significant than the above-mentioned rationing of reserves and fixed capital, because it still allowed large enough loan customers, which could become a problem for the bank in case of their default.

Thus, the risk was a systemic problem of city banks by 1882, but after the introduction of limits on transactions, it clearly decreased. However, these limits were not the main reason for the compression of the system of city banks, because these restrictions were the same for city banks, whose operations were falling, and joint-stock commercial banks, which were growing at that time.

An important factor that influenced the system of city banks in the 1880s was the massive internal and external audits that forced banks to put assets in order. The norms of 1883 strengthened city audits and added direct government audits to them (Articles 9-19). The audit commission for checking the annual report was now elected by a closed vote of the City Duma, had two months, and not one, as before, to check the report. The Duma's decisions on the problems identified in the banks were also to be taken by a closed vote. The City Duma could request a government audit through the governor, which was to be conducted by the Ministry of Finance. The same could be done by the vowels of the duma, if they were recruited by a fifth of the total composition. The audit was to be conducted in the presence of representatives of the Duma chosen for this purpose. Its results were reported to the Duma through the governor. However, regardless of this procedure, the Minister of Finance, in agreement with the Minister of Internal Affairs, had the right to directly appoint an emergency audit of the bank.

Revisions have indeed become very common. Many reports of city banks for 1883-1885, which could be viewed in the Russian State Library (RSL), in the Russian National Library (RNB), in the Russian State Historical Archive (RGIA) in the fund of the Special Office for the Credit part of the Ministry of Finance (f. 583, op. 2) contain expanded reports of audit commissions, from which means that they really tried to sort out the affairs of the banks.

In 1898 The Special Chancellery published the materials of 68 government audits that took place in 1883-1891 ^{[18, pp. 123-139]}. It turns out that out of about 293 banks that existed in those years, about a quarter (!) underwent this procedure. As a rule, these were not the banks that later closed. However, for all the surviving banks, audits were a disciplining factor.

An overview of the revision materials from the publication of the Special Chancellery is made in the article by S. A. Salomatina and A. B. Bozhinov ^{[16, pp. 181-182]}. For each bank, two balances are available in them — before the audit and after, which allows us to assess the scale of the violations identified. There were indeed problems with reporting: doubtful and bad debts, current and operating expenses, as well as direct losses were underestimated. The banks themselves assessed their own property much more optimistically than the auditors. The scale of the audits of the 1880s could not but lead to a serious purge of assets across the entire system of city banks in accordance with the new requirements for operations and reporting. Risk reduction and restoration of trust were accompanied by a significant reduction in operations. However, the 1880s were generally not a very unfavorable period for banking, which will be discussed in the next section.

The regional aspect of the crisis of the 1880s.

The epicenter of the banking crisis of the 1880s turned out to be in the Central Chernozem region, which remained completely unnoticed in the scientific literature, so the regional aspect of the crisis deserves close attention. The geographical maps in Figures 4 and 5 show the city banks operating from 1875 to 1895 in the European and Asian parts of the country, and the map in Figure 6 shows for comparison the location of mutual credit societies, which at that time were not at all in Asia. Settlements with closed credit institutions are highlighted in red. The basis for the maps was the "Map of steamship communications, railways and postal roads of the Russian Empire" (St. Petersburg, Edition of the cartographic institution of A. Ilyin, 1911), provided by the Fund of Cartographic Publications of the RSL. This map is divided into the European part and the south Asian part of the Russian Empire, while due to the peculiarities of the projection, Orenburg, Orsk, Troitsk and Tyumen are represented on both maps. The borders of the provinces on the maps in Figures 4-6 are adjusted for 1890 . For orientation on the maps of the European part, only provincial centers where there is enough space, as well as Odessa and Rostov-on-Don, are signed.

The geography of urban public banks is specific: there are none in Poland, Finland, in the Kiev, Volyn and Podolsk provinces (Southwest), Vilna, Kovno, Grodno and Minsk (Northwest). The question of the location of city banks is not limited to the geographical aspect of the City situation on June 16, 1870 (PSZ. II Sobr. No. 48498.) — banks operated under city self—government - and needs further study. In addition, there were no city banks in large cities, where there were many credit institutions of other types (St. Petersburg, Moscow, Kiev, Odessa, Riga).

City banks were concentrated primarily in county towns in the Central Chernozem, Central Industrial, Ukrainian Left-Bank and Middle Volga regions, according to I. D. Kovalchenko's zoning ^{[5, p. 181-184]}. The share of the Central Chernozem Region (Voronezh, Kursk, Oryol, Ryazan, Tambov, Tula provinces) was the largest in the assets of the city bank system. By January 1, 1882, of the total assets of all banks of 231.6 million rubles, this area accounted for 82.9 million rubles (36%). For comparison, in the next largest Central Industrial District, assets were already much smaller — 37.5 million rubles (16%). However, if the assets of the closed banks are selected from the data of 1882, then the vast majority, or 84%, belonged to the Central Chernozem region. Figure 4 shows that the largest number of closed banks were located here, while in the European part there were provinces that were slightly affected by the wave of bankruptcies, and in the Asian part there were almost none at all (Figure 5). Figure 4. City public banks operating in 1875-1895 in the European part of the Russian Empire.

Note: only provincial centers where there is a place on the map, as well as Rostov-on-Don, are signed.
Sources: see sources to Figure 1.Figure 5. City public banks operating in 1875-1895 in the Asian part of the Russian Empire.

Sources: see sources to Figure 1.Figure 6. Mutual credit societies operating in 1875-1895 in the European part of the Russian Empire.

Note: only the provincial centers where there is a place on the map, as well as Rostov-on-Don and Odessa are signed.
Sources: see sources to Figure 1.A comparison of the system of city banks with mutual credit societies (Figure 6) helps to confirm that the Central Chernozem region was the epicenter of the crisis.

The geography of mutual credit societies differs from urban banks. Metropolitan companies (in St. Petersburg and Moscow) were very large, and they account for 33% of all assets (56.8 million rubles out of 173.3 million rubles). These societies do not exist in Asia, as already mentioned, in Finland, there are few of them in the Southwest. In some cities there could be several societies (two in St. Petersburg, two in Moscow, four in Kharkov, three in Riga, two each in Astrakhan, Vilna, Vitebsk, Pskov, three in Rostov-on-Don, i.e. two in the city itself and one in Nakhichevan, which almost merged with it -on-Don). Taking into account these geographical features, it is clear that the Central Chernozem region accounted for few assets of mutual credit societies — 14.8 million rubles, or 8.6%. However, almost all the assets of the closed companies (89%) were located here.

Let's look at the banking crisis in the Central Chernozem region in the provincial context. Table 2 estimates asset losses in the amount of city banks and mutual credit societies from 1882 to 1890, which can be considered as a reduction in regional inactive commercial banks during the most difficult period.

Table 2. Reduction of assets of municipal public banks and mutual credit societies in the Central Chernozem region, by assets as of January 1, 1882 and 1890, million rubles.Province

* — The assets of the new institutions are included in the calculations, although their amount was negligible for this area.
Calculated by: see sources to Figure 1.Table 2 shows a sad picture.

The Tula province almost completely lost inactive commercial banks, 6.1% of their assets remained. In the Ryazan, Orel and Voronezh provinces by 1890, assets accounted for only 15-25% of 1882. It was in these provinces that the famous bankrupts operated — the Skopinsky and Oryol city banks, but besides them, 13 other institutions were lost here. The most assets were preserved in the Tambov province — 5.5 million rubles, but this is only 31.7% of 1882. The smallest losses were in the Kursk province, 74.9% remained, but there were many times fewer assets than in other provinces (6.3 million rubles), and the 1880s passed without bankruptcy. Losses of credit institutions in the Kursk province happened earlier, in 1878, when both the city bank and the mutual credit society were closed in the county town Shorter. The details of this sharp drop in confidence at one point several years before the main wave of the crisis should be sought in regional materials.

In general, 23.1% of the assets of 1882 remained in the Central Chernozem region by 1890. Recall that according to Table 1, this indicator was noticeably higher for the entire system of city banks — 54.3%, and for mutual credit societies the overall decline was minimal — 95.7% from 1882.

The reasons for the banking disaster in the Central Chernozem region should be sought in the regional economy. To do this, we will focus on the Orel province, for which enough information has already been accumulated to show how the general economic situation worsens the banking crisis ^{[15, p. 165-171] [17, p. 137-138, 141-152.]}. From these materials follows the rapid growth of the economy of agricultural exports in the 1870s, then a sharp deterioration the situation since 1882, and a steady negative trend throughout the 1880s.

Even before the appearance of railways, the agrarian Oryol province was a center for the accumulation, processing and resale of agricultural products for neighboring regions. In the 1870s. The Eagle gained great advantages, because now the Riga–Tsaritsyn railway line passed through the province, giving direct access to the Baltic ports and western borders. The situation in the foreign markets of agricultural products was then favorable. As a result, the sector focused on agricultural exports by rail has grown in the Orel province. Commodity specialization of agriculture has intensified. Orel, Yelets, Livny and even some large villages and railway stations functioned as centers for the accumulation and re-shipment of products. In the eastern chernozem counties (Yeletsky, Livensky, Maloarkhangelsky), wheat was processed into flour and then sold. The rest of the products, primarily rye and oats, were sent in unprocessed form to Riga, Libava, Warsaw and Konigsberg. Trade infrastructure expanded in the region, the role of intermediaries from export ports increased, land prices rose, landlords received a good income and invested in improving their farms, the welfare of peasants also grew.

In 1882, the situation worsened. Prices for agricultural products fell, and the harvest in terms of quantity and quality was below average. Moreover, in 1884-1885 there was a much more severe and prolonged local crop failure. The decline in prices was worldwide and remained at an unfavorable level for producers throughout the 1880s. The regional economy found itself in a situation of prolonged recession, which lasted at least until 1893. Both landlords and peasants have been in a difficult situation all these years.

Credit institutions in the 1880s more often died not at the beginning of the crisis, but later under the burden of accumulated problems. A drop in trust at one point led to the collapse of both the city bank and the mutual credit society, although these events could be spaced in time. In Orel, about six months after the bankruptcy of the city bank, the same fate befell the mutual credit society (January 8, 1885). These two collapses developed almost simultaneously, and the same residents of the city suffered from them ^{[14, p. 11]}. Double bankruptcy also occurred in the county towns of Mtsensk (in 1885 the mutual credit Society, in 1887 the city bank) and Bryansk (in 1886 the mutual credit society, in 1889 the city bank).

However, the list of surviving credit institutions of the Orel province does not look so short, i.e. the difficult economic situation did not necessarily lead to bankruptcy. The city banks in Yelets and Livni, Bolkhov and Karachev survived the crisis. A small county Sevsk has preserved both the city bank and the mutual credit society. Mutual credit societies continued to operate in Kromakh and Trubchevsk.

However, the main control examples for assessing the depth of problems in the region are state-owned and joint-stock banks, where the most high-status clientele was concentrated. Since 1872, the Orel Commercial Bank operated in the Orel province with a board in Orel and branches in Yelets, Bryansk and Livni. The bank was part of the group of enterprises of the banker Lazar Polyakov, the core of which was located in Moscow. Back in the 1870s. Oryol Commercial Bank has developed lending secured by agricultural products exported to the west. The most difficult years for the bank were the years of the great crop failure of 1884-1885, when it was necessary to sharply reduce the loan secured by goods. In 1884-1889, other credit operations of the bank were compressed, but throughout the 1880s, the bank published reports with a profit, although minimal in its entire history. The State Bank in the province had branches in Orel since 1865 and in Yelets since 1882 in the 1880s. The Orel branch reduced operations and was unprofitable from 1884 to 1887. The Yelets branch also could not make a profit until 1889 ^{[15, p. 168.]}

If we compare the assets of these banks at the same control points — on January 1, 1882 and 1890, the Orel Commercial Bank, with the same number of divisions, decreased from 7.3 million rubles to 5.9 million rubles, or by 18% ^{[12, pp. 34-35] [13, pp. 34-35]}. According to the State Bank, such a calculation is possible only for the Orel branch, because the Yelets branch has not yet opened on January 1, 1882. The amount of assets for each branch was not published in the reports of the State Bank in the 1880s, however, it is possible to calculate the amount of the main active operations (cash register, securities, loans, including overdue ones). For the Orel branch, this figure decreased from 3.5 million rubles to 2.2 million rubles, or by 38% ^{[10] [11]}. Thus, for eight years, the compression of the operations of the Oryol Commercial Bank and the Oryol branch of the State Bank was several times less than that of local city banks and mutual credit societies, which decreased by almost 80%. If we assume that the joint-stock and state-owned bank reduced operations due to poor economic conditions, then this was clearly not the only reason for inactive banks. We need to add to it the poor quality of loan portfolios and weak financial stability, which were discussed in the previous sections. All these factors together could contribute to such a large compression of assets in the Orel province. However, as it follows from the geographical distribution of the closed institutions in Figures 4 and 6, as well as from Table 2, this was a problem of the entire Central Chernozem region, so the combination of bad market conditions, unreliable loans and financial instability can be extended to the entire region. For other regions with bankrupt banks, the local economic situation needs to be clarified in separate studies.

ConclusionThe banking crisis of 1882-1889 is the largest in the history of the Russian Empire in terms of the number of lost institutions.

The main losses were incurred by city public banks and, to a lesser extent, mutual credit societies. Joint-stock commercial banks experienced their "own" crisis in 1875-1880/1881.

The study of the crisis of the 1880s was previously difficult due to the lack of consolidated quantitative data on all city banks and mutual credit societies, even the exact number of closed institutions was not known. This problem is solved in our study, for which a new array of data on assets and the number of institutions for 1875-1895 was created. This collection of data is compiled on the principle that first the list of institutions that existed in a particular year is specified, and then data on each of them is collected from different sources. The result of this work was also a list of credit institutions that stopped operations.

The sharp decline in the operations of city banks since 1882 suggests that this process had institutional reasons in the sense that the "rules of the game" have changed for these banks. Indeed, our study shows that since the 1860s, these banks have been given the opportunity to conduct risky credit operations without proper control from the city duma, to which the banks were accountable, or the Ministry of Finance. However, it was only in 1882 that a situation arose when the excess of the outflow of deposits over the inflow led to the first major bankruptcy, with which the crisis began. By that time, many banks not only had an unreliable loan portfolio, but were also in a state of insufficient financial stability. The crisis has removed weak credit institutions from the market. The assets of the surviving banks decreased in the process of restoring order to them. However, legislative measures for shrinking city banks did not differ from the new norms for growing joint-stock commercial banks, and by themselves could not lead to such a large reduction as eventually occurred. It was precisely the cleaning of assets, an important contribution to which was made by the mass audits that began then both at the city level and through the Ministry of Finance. Stricter requirements for city banks were necessary to protect the financial interests of the cities to which these banks were subordinate.

However, the crisis of the 1880s also had a regional aspect, because the Central Chernozem region suffered first of all. By 1890 , an insignificant part of the assets of city banks and mutual credit societies remained in the district compared to 1882 . Using the example of the Orel province, it is known that the region suffered from the collapse of the economy of agricultural exports by rail, which flourished here in the 1870s. The crisis of falling agricultural prices, which was aggravated by local crop failures, made the situation of weak banks hopeless. However, joint-stock and state-owned banks in the Orel province suffered much less compared to city banks and mutual credit societies, which again draws our attention to the institutional causes of the crisis of city banks.

Thus, I. F. Gindin's statement about the crisis, quoted in the introduction, can be updated taking into account the results obtained: the accumulated bad loans, weak financial stability, lack of control and the crisis of falling agricultural prices in the Central Chernozem region dealt a decisive blow to city banks. Appendix 1. Methodology and sources of statistical summary compilation

according to the assets of credit institutions for 1875-1895 . All data are balance sheet, i.e. as of January 1 of each year.

For joint-stock commercial banks, a fragment of the summary for 1865-1916 was used, including data on the number of boards and branches: Russian joint-stock commercial banks according to reports for 1915, with corresponding data for 1914. Pg., 1916. pp. 54-55.

For city public banks and mutual credit societies, the list of operating institutions for each year was first clarified, for which all the sources listed below were used.

For some years, there are published pre-revolutionary reports (1875-1882, 1895), in such cases, the completeness of the accounting of institutions in the reports was checked, the identified gaps were filled with data from other sources. For 1883-1894, the balance sheets of individual institutions were collected "piece by piece".

For 1875-1877, instead of full-fledged balance sheets according to the Yearbooks of the Ministry of Finance, only the amounts of fixed assets and fixed liabilities can be calculated, therefore, the largest of them is used as the balance sheet amount.

Gaps for a particular institution were filled with average indicators calculated from available balances over the coming years. If there were more gaps than the identified balances, the institution was excluded from the calculations. List of sources

1. Bulletin of Finance, Industry and Trade.

1885.

2. Bulletin of Finance, Industry and Trade. Balances of credit institutions. 1885-1894.

3. Bulletin of Finance, Industry and Trade. Reports of publicly accountable enterprises. 1886-1899.

4. Golubev A. K. Russian banks. The first year. St. Petersburg: Committee of the Congress of Representatives of Commercial Credit Banks, 1896.

5. Gubernskie vedomosti (different provinces). 1875–1885.

6. Yearbook of the Ministry of Finance. Issue 1-13. Saint Petersburg: Type. ed. period. ed. Ministry of Finance, 1869-1883.

7. Yearbook of Russian credit institutions / Comp. edited by I. S. Ivashchenko. Issue 1-4. St. Petersburg: Committee of the Congress of Representatives of Joint-Stock Commercial Credit Banks, 1880-1886.

8. Information about city public banks. St. Petersburg: Special Office for the Credit Part of the Ministry of Finance, 1898.9. Index of government orders for the Ministry of Finance.

1871–1884. Collections of bank reports for the 1870s - 1880s.

1. Brochures of reports of individual credit institutions in the RSL and RNB.

2. RNB. Department of Manuscripts. F. 484. Collection of materials on the history of finance of Russia.

3. RGIA. F. 583. Special Office for the credit part of the Ministry of Finance. Op. 2. Reports of credit institutions.