Dutch Cooperative Banking

On Friday of last week I had the privilege of examining Chris Colvin's PhD at the London School of Economics.  His dissertation is a study of the Dutch cooperative banking system in the 1920s, a period when the Dutch banking system experienced a severe crisis.  The main findings of his PhD are as follows:

1. Religion played an important role in the stability of cooperative banks during the crisis.
2. Cooperative banks which faced greater competitive pressures took more risk.
3. The ability of banks to limit their liability resulted in them taking greater risks.

Although one needs to be circumspect about drawing policy lessons from an historical episode like this, there are two things from this episode which should, at the very least, get us thinking.  First, competition in banking may not always be a good thing.  Second, to use modern parlance, owners need to have 'more skin in the game' in the form of some form of extended liability.  See my previous post on this issue.

Click here to see more of Chris Colvin's work.

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