The Сrisis of Municipal Banks in the Russian Empire in the 1880s: A Financial Stability Analysis of Historical Data

The banking system of the Russian Empire in the second half of the XIX — early XX centuries was an important factor in the economic development of the country. The formation and evolution of credit institutions of various types have become an important driving force of entrepreneurial activity. Attracting deposits to consolidate capital for various projects, credit operations and other types of banking activities created opportunities for the implementation of entrepreneurs' initiatives. One of the important elements of the banking system of Russia were the so-called city public banks, which appeared in the XVIII century, took a regulated form in 1862, when the “Regulations on City Public Banks” were published under Emperor Alexander II ^[35].

City public banks were a separate element of the credit system of Russia. Unlike the branches of the State Bank of the Russian Empire (hereinafter — the State Bank), joint-stock commercial banks and mutual credit societies, these banks were actually an economic element of local government, they were under the supervision and partial control of the city duma and acted primarily in the interests of the city. Despite the fact that city public banks carried out approximately the same operations as branches of the State Bank, joint-stock commercial banks and mutual credit societies, the results of their activities had a serious impact on the fate of cities. In case of profits, the city bank shared part of them in favor of the local government for its socially significant projects, but in case of problems, the city had to help the bank.

This work is devoted to the crisis of city banks in the 1880s - one of the most difficult and poorly studied periods in their history. A total of 60 banks closed between 1878 and 1893, with 51 of them leaving the market in the period 1882-1890 (39 in 1882-1887 and another 12 in 1888-1890). The surviving banks suffered serious losses. The number of city banks was the maximum by the end of 1882 — 287 institutions (data on the number of banks were collected by S. A. Salomatina from various sources). Thus, we are talking about the loss of at least 20% of the entire system of these banks.

The purpose of our study is to identify the features of the operations of urban public banks that affected their financial stability in the 1880s. In fact, we are talking about identifying the structural weaknesses of these banks as the cause of their crisis. In addition, it is important to understand how the city banks differed before and after the crisis, because crises affect the industries that affect. Based on this, the time limits of the study begin in 1877-1881, in the last years of the heyday of city banks, on the eve of the crisis. The upper limit was January 1, 1895, by that time banks had already stopped closing, and the first full-fledged summary of their balance sheets appeared after a long break, after January 1, 1882. The source of the research is the materials of the accounting statements of city public banks published in various publications in the 1870s - 1890s.

The novelty of our work lies in the application of modern methods of analyzing the financial stability of enterprises to the banking statements of the XIX century. to identify fundamental changes in the structure of city banks' operations from the late 1870s to the mid-1890s. In addition, this study includes all city banks operating in Russia, whereas usually a regional approach is used in this topic, as will be shown later in the historiographical review.

The work has the following structure: at the first stage, the scientific literature on urban public banks and their crisis in the 1880s is analyzed. Further, the possibilities of applying modern methods of financial analysis to the reporting of banks of the XIX century are commented on. Then the causes of the crisis proposed in historiography are analyzed, and our own assumptions about possible other causes of these events are put forward. At the next stage, the collected data is analyzed using financial analysis methods to assess trends in the industry before and after the crisis. Based on the results of this work, conclusions are drawn about the significance of the crisis in the changes that have occurred with the financial stability of urban banks.

Thus, this research contributes to the study of banking crises, financial stability of banks, problems of state regulation of the banking industry.

Urban public bank and in historiographyThere is not much scientific literature on the history of urban public banks published in the XIX and XX centuries.

Of the pre-revolutionary reviews written in institutional (history of origin and development) and legal (features of operations) aspects, the works of V. Ya. Ososov ^[33] and A. N. Guryev ^[17] are most often cited. In the early 1880s, directly under the influence of the crisis of urban public banks, pamphlets by P. Cherkasov ^[44] and V. T. Sudeikin ^[41] were created, which are now rather a source about the perception of the crisis by contemporaries than scientific literature on the topic.

A classic work devoted to the pre-revolutionary banking system is I. F. Gindin's monograph “Russian Commercial Banks”, published in 1948. ^[12] Gindin saw the causes of the crisis in the general unfavorable economic situation in the 1880s, in the strengthening of joint-stock commercial banks, in the crisis of confidence in city public banks ^{[12, p. 45]}.Over the past 20 years, a lot of research has been published on the history of urban public banks.

Unfortunately, there are many secondary texts of low quality among them. Next, we tried to make an overview of studies that expanded our understanding of the system of urban public banks, although it is unlikely that we were able to cover this area entirely. In addition, due to the limited volume of the article, we tried to mention no more than one work by each author, with some exceptions.

Both historians and economists are engaged in the history of urban public banks, and the difference in their approaches is not so significant. This literature, as a rule, is regional in terms of the object of research, the main emphasis in it is on the institutional and legal aspects of the history of banks ^{[3] [11] [16] [24] [27] [28] [42] [43] [45] [47]}, generalizations concerning the all-Russian level, as a rule, they are also limited to a formal legal approach ^{[10] [15] [31]}. The value of these publications is to varying degrees due to the use of archival sources, regional and inaccessible published materials, quantitative analysis ^{[2] [5] [14] [18] [25] [26] [34]}. Of particular interest are works examining the history of urban public banks in connection with the development of urban self-government, charity, and regional infrastructure ^{[1] [6] [8] [9] [40]}.

Concerning the crisis of the 1880s, there are valuable observations in regional publications, from which the all-Russian scale of the crisis follows. For example, M. V. Zaitsev, using the example of the Saratov Bank, pointed out that "the crisis was caused by significant losses on loans for promissory notes and real estate, "due to an exaggerated assessment of both some estates and the creditworthiness of some clients on promissory notes in previous years, which seemed favorable." Only thanks to the joint efforts of the government, the City Duma, which limited the amount of loans on promissory notes to twenty-five thousand rubles, and the amount of loans for real estate to twenty thousand rubles, and the board, the bank's position stabilized" ^{[25, p. 102]}. V. S. Artemyeva describes the situation in the Voronezh province, where Zadonsky, Valuysky, Bobrovsky banks stopped its existence in 1884-1885 . The illegal actions of some members of the board of these banks were investigated until the 1890s, despite the liquidation of the banks themselves ^{[2, p. 194]}.

The question of the collapse of the Skopinsky Bank has been well studied in historiography. Here it is especially worth paying attention to Ryazan regional studies, for example, the article by A.V. Belyakov ^[4] and the book by M. V. Kuznetsov about the local police, which has a chapter dedicated to the investigation of I. Rykov's scams that led to the collapse of the Skopinsky Bank. It contains excerpts from the investigation materials that demonstrated the scale of the banker's fraud ^[32].

On the history of urban public banks, it is particularly worth noting the works of A. K. Kirillov and A. S. Chumakova, on some of whose provisions it is necessary to focus attention in connection with our research.

A. K. Kirillov's works are devoted to urban public banks in Western Siberia, their origin, development, flourishing, crisis, recovery and, as a result, decline ^{[29] [30]}. The author comes to the conclusion that after the Regulation of 1862, the banks of Western Siberia developed generally well for two decades until 1883, when significant amendments to the Regulation were adopted, because "not all city banks operated successfully" ^{[29, p. 139]}. A combination of factors led to the decline of the city banking system: the fall of the Skopinsky Bank caused panic among depositors across the country, and the draconian measures taken by the government deprived banks of the opportunity to maneuver in unfavorable conditions ^{[29, p. 140] [30, p. 239]}. In our work, an attempt is being made to understand what caused such harsh actions of the government to regulate the operations of banks.

A. S. Chumakova's monograph is devoted to the city banks of the Simbirsk province in the second half of the XIX — early XX centuries, and in this study their involvement in the socio-economic life of the region is particularly noted ^[46]. For example, the Simbirsk City Public Bank "significantly contributed to the development of crafts, trade and entrepreneurship" by issuing indefinite loans ^{[46, p. 118]}. "It was the city public banks that, having assumed all the risks existing during the crisis, in the conditions of refusal of lending to industry by commercial banks, prevented many large, medium and small industrial enterprises from going bankrupt" ^{[46, p. 118]}. Chumakova also notes the significant investments of city banks in charity. So, during the Russian-Turkish War of 1877-1878, the bank donated 5,000 rubles. for the maintenance of hospitals in Plevna and Chisinau, participated in the opening of three hospitals in Simbirsk, and also "donated 25 thousand rubles in favor of wounded soldiers, and in 1880 — 300 rubles. for the construction of an Orthodox church in the Balkans" ^{[46, p. 129]}. In the province as a whole, these banks "increasingly adopted resolutions on various kinds of donations and deductions from profits for the construction of schools, the opening of craft schools, the establishment of scholarships, the establishment of libraries and reading rooms, the issuance of periodicals, the purchase of cinematography, and so on" ^{[46, p. 130]}. Socially useful activities clearly distinguished the city banks, which operated in accordance with the Regulations of 1862, from their predecessors, which arose under Catherine II, which served the interests of the large merchants and the wealthy strata of the city ^{[46, p. 144]}. Chumakova notes that, in essence, the city bank was "an organization that belonged to the number of public institutions and acted under the supervision and responsibility of the City Duma ..." ^{[46, p. 146]} Chumakova's conclusion about the social significance of city banks and their close connection with the needs of the city is important for the selection of indicators of financial stability of banks in the analysis conducted in our study.

However, summing up this review, it is important to note that the issue of the crisis of urban public banks in the 1880s requires further research. It is necessary to clarify the causes of the crisis. The topic needs an all-Russian approach using statistical sources and financial analysis. An attempt to fill in these gaps was made in our study. Sources for financial stability analysis

The sources of our research are based on the accounting statements of city public banks, which were mandatory for publication according to the Regulation of 1862 and a number of other legislative acts.

In particular, the Regulation in paragraph 20 states that the annual report should have consisted of the main indicators of the assets and liabilities of the balance sheet — the state of capital, depositors' funds, the distribution of funds by terms and conditions, the presence of doubtful and bad debts. "In general, the report should contain detailed extracts from the general ledger (ledger) on the status of accounts and their movement during the year" ^{[35, Article 20]}. The annual report was submitted to the city Duma, and then within a month the inspectors selected from among the citizens had to confirm its authenticity. After that, the report was forwarded to the Ministries of Finance and Internal Affairs for statistics.

Unfortunately, the consolidated publications of the reports of city public banks until the mid-1890s contain significant shortcomings and lacunae that limit the possibilities of applying modern methods of financial analysis. Thus, the earliest reports for 1868-1880, published in the "Yearbooks of the Ministry of Finance", are not full-fledged balance sheets and are insufficient in terms of a set of indicators for analyzing financial stability ^[20]. Summaries of the balance sheets of all banks operating on a specific date are, in principle, absent for 1883-1894. There is a "full-fledged" consolidated balance sheet on January 1, 1882 (more on that later) and then only on January 1, 1895 ^{[13, pp. 222-231]}

Since 1886, the annual balance sheet and profit and loss account of each bank has been published in the Bulletin of Finance, Industry and Trade in the appendix "Reports of Publicly Accountable Enterprises" ^[7]. The problem is that these are scattered data, from which it is impossible to make a summary for the time available to us, so we also had to abandon their use.

Another publication has been suitable for our research — the Yearbook of Russian Credit Institutions ^[21], where there are fairly complete and uniform summaries of the balances of city public banks as of January 1, 1878, 1879, 1880, 1881 and 1882. The yearbooks, which eventually turned out to be only four issues, were prepared by statisticians of the Committee of Congresses of Representatives of Joint-Stock Commercial Banks under the leadership of an official of the State Bank I. S. Ivashchenko. In the 1870s, this Committee made a great contribution to the modernization of bank accounting in Russia, to the unification of public reporting of joint-stock commercial banks and other credit institutions ^{[38, pp. 63-96]}.

At the same time, balance sheets from the "Yearbooks of Russian credit institutions" contain undesirable "impurities". Together with city banks, inactive commercial banks of the Livonia province are taken into account, which in all other reports were placed separately or together with joint-stock commercial banks (Riga Stock Exchange Bank, Riga City Accounting Bank, Dorpat Bank). Accounting for these banks together with city banks distorts the average figures for city banks. According to the same principle — do not mix banks of different types — data on small rural public banks have been removed from the summaries. The number of banks in the summary for each year had to be clarified by removing empty rows from the tables related to banks for which the compilers had no data. In the summary for January 1, 1882, used in our calculations, the totals do not converge on the last of the 10 pages, however, this looks more like a problem of sums than a problem of data on individual banks, on which we focused ^{[23, 1881, pp. 240-249]}. After all the adjustments, the data from the "Yearbooks of Russian credit Institutions" turned out to be used to calculate financial stability coefficients.

Another acceptable source on our topic turned out to be "Information about city public Banks", published in 1898. A special office for the credit part of the Ministry of Finance ^[39]. Apparently, this publication was an attempt to fill a gap in the data on city banks for 1882-1893. There are no full-fledged balances for all banks on specific dates in the 1880s in this publication, but other materials are of great value. Firstly, these are the last balance sheets of 53 banks that closed at different times in 1878-1890. For many such banks, this balance sheet is almost the only source of information about them for the 1880s.

Secondly, these are the materials of audits of individual banks by the Ministry of Finance. According to their results, the balance sheets were published in two versions for comparison — compiled by the banks themselves and the auditors of the Ministry of Finance. Such revisions began at the end of 1883 and continued until 1891 inclusive. In total, the publication contains data on 68 audits, i.e. they covered only a small part of banks. Overwhelmingly, these were not the banks that closed during the crisis. Nevertheless, these materials give an idea of the scale of the problems with reporting in the system of city banks.

As a result, for our calculations, we used full balance sheets for all banks as of January 1, 1878, 1882 and 1895. This allows you to get "snapshots" of the system of city banks before the crisis (1878), on the eve of the crisis (1882) and already at the beginning of a new economic cycle (1895). Financial stability coefficients were calculated for all banks, and then the averages of these coefficients for four groups of banks were derived.

The first group is banks that operated in 1878 and 1895, i.e. these are institutions that survived the crisis. The second group consists of banks that closed in 1878-1887, i.e. before the main crisis wave and in the most difficult five years after its beginning in 1882. The third group consists of banks that closed in 1888-1894, i.e. later, perhaps for reasons unrelated to the crisis in the early 1880s. The list of closed banks is compiled from various sources, including a comparison of the lists of banks as of January 1, 1882 and 1895 ^{[23, 1881, c. 240-249] [7, 1892-1895] [13, p. 222-231] [39, p. 117-121]} The fourth group consists of 53 banks that closed at different times in 1878-1890, according to their latest balance sheets ^{[39, pp. 117-121]}. As a result, by comparing financial stability indicators for different years for surviving and closed banks, the difference in their ability to withstand financial risks is revealed. In addition, the difference between banks' own and audit balance sheets is used to assess the quality of reporting in the 1880s ^{[39, pp. 123-139]}. About the causes of the crisis of urban public banks

There are several versions of the causes of the crisis of urban banks.

Thus, I. F. Gindin wrote that "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 shady businessmen in individual banks dealt a decisive blow to city banks," which was a reference to the scam of banker I. Rykov in the city bank of Skopin ^{[12, p. 45]}, however, such a case, as already noted in the historiographical review, was far from the only one. As another example of this kind, the Orel City Public Bank, with a book value of 6.4 million rubles, went bankrupt in 1884 for approximately the same reasons as the Skopinsky Bank. In the Orel brochure of 1888, it is noted that the head of the bank, merchant Avilov, was convicted in 1887 precisely because of fraudulent transactions in the bank that led to its closure ^[37].

I. F. Gindin's point of view is supported by A. K. Kirillov and adds that an important factor in aggravating the crisis situation was the increased state regulation of the industry — "having begun due to internal reasons, the crisis of the city banking system has significantly worsened and dragged on under the influence of state regulation. The same government measures significantly hindered the restoration of pre-crisis development trends" ^{[30, p. 239]}.

It is impossible not to agree that excessive state intervention rarely benefits the development of entrepreneurship, including banking, but the question remains open — is not the regulation of urban public banks the "rare" case? Actions to strengthen regulation in the industry could have significant grounds.

The significance of the new "Regulation on City Public Banks" of 1883 was analyzed in some detail by A. K. Kirillov, rightly pointing out its rigidity ^{[29, p. 112]}. It did introduce numerous restrictions into the operations of city banks and streamlined the methods of accounting, reporting and its verification. Thus, Article 16 gave the Minister of Finance the right "to appoint emergency audits of city public banks, in case of receiving information about the riots allowed in them" ^{[36, Article 16]}.

Such audits from 1883 to 1891 were carried out in 68 banks, and their results were generally disappointing, as significant discrepancies between the reports and the real state of affairs were revealed. If we aggregate the results of the audits, the biggest discrepancies were caused by the assessment of the quality of debts to the bank and its own property, as well as accounting for the bank's losses (see table 1). So, if we take the audit data for 100%, then the assessment of doubtful and bad debts on loans was underestimated by 56.4 percentage points (pp), losses — by 78.8 pp, current and operating expenses — by 34.8 pp, but the availability of court writ of execution, on the contrary, was overestimated by more than three times — by 223.8 p.p., and the banks' real estate was estimated at 59.0 p.p. higher than the auditors' estimates. Such discrepancies suggest that many urban banks in Russia had problems similar to those that eventually led to the collapse of the Skopinsky and Oryol banks. Table 1. The difference between the reporting compiled by banks and the results of audits (taken as 100%)*

* — for 68 banks from 1883 to 1891 .
** — on loans secured by movable and immovable property.
*** — writ of execution for penalties awarded to the bank.
Compiled by: ^{[39, pp. 123-139]}. It turns out that the real financial situation was hidden behind poor-quality reports, which gave depositors the impression that everything was under control at the banks.

The problem here is that, on the one hand, it is impossible to expect banks to provide absolutely reliable reporting, especially on such balance sheet items that require a subjective assessment — for example, the “doubtfulness” of the borrower's debt. Some debts, the repayment period of which is missed, can then be returned, but at a certain stage they must be transferred to the category of hopeless and written off at a loss. On the other hand, a soft approach to the assessment of their debts could create a misconception about the quality of assets for the board itself, even in the absence of malicious intent. In this case, under unfavorable conditions, for example, during a bank panic, or the flight of depositors (when depositors massively begin to withdraw their deposits from the bank) due to some internal or external reasons for the bank, it could not be able to pay off debts.

There is a consensus in the literature that such a panic among depositors of city banks was caused by the fall of the Skopinsky Bank (closed on October 12, 1882) (Here and further in this section, information about closed banks is given according to ^{[39, pp. 118-119]}.) On January 1, 1882, this bank was the largest in the country by book value (12.7 million rubles) and its bankruptcy dealt a severe blow to the reputation of city banks. Interestingly, this was not the first collapse of the city bank — the list was opened by small Korochansky in Kursk province (in 1878), Starobilsk in Kharkov and Bogorodsky in Moscow (both in 1879) with a combined book value of about 1.0 million rubles. Moreover, these banks had significant problems with the quality of promissory notes and loans: overdue debts of customers, writ of execution and losses accounted for 50-60% of assets, although there is no information about any fraudulent transactions of these banks. The near—term decline of three banks in areas with different economic specialization (Kursk and Kharkov provinces — agriculture, Bogorodsky Uyezd of Moscow province - textile industry) can be attributed both to the decline in grain harvest and their exports in 1879 (see Figure 1) and to unsuccessful management. The withdrawal of these three banks from the market would probably have remained a series of isolated cases that saved the industry from small failed banks and did not affect the development of the city banking system as a whole, if not for the Skopinsky collapse, which triggered a full-scale crisis. Figure 1. Dynamics of grain exports* from the Russian Empire in 1877-1883, million rubles.

* — corresponds to the concept of "bread" in Russian foreign trade statistics and includes wheat, rye, barley, oats, corn, peas, beans, beans and lentils, various cereals, flour, bran.

Source: ^[19]

Here we come to the fundamental question of banking regulation about the quality of financial puffiness.

  The fact is that in general, the main feature of banking is the attraction of borrowed capital. One of the favorite quotes used by experts in banking history in their texts is the saying of the British economist David Ricardo that "the distinctive feature of a banker is the use of other people's money," because while he uses only his own, he is just a capitalist ^{[48, p. 11]}. In a considerable number of banks, borrowed capital (other people's money) occupies a significant part of liabilities, and it is they who form the necessary amounts of funds for conducting operations.

In the financial sector, it is difficult to overestimate the importance of reputation, and it is known to be difficult to earn, easy to lose and almost impossible to restore. It is she who is an important factor that allows the bank to attract borrowed capital, and the annual report allows the depositor to understand whether it is worth carrying their money to this bank, or it is better to choose another way of investing funds.

In the second half of the XIX century, there was no deposit insurance system yet. The Regulation of 1862 stated that "the 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" ^{[35, Article 25]}. This paragraph of the law created some kind of guarantees for deposits, but, as the cases of the fall of the Skopinsky and Oryol banks showed, city societies were unable to pay the debt on the bank's obligations in a timely manner and, as follows from the Oryol case, were forced to request assistance from the government. Even if urban societies found the means to repay debts to depositors, this process could take years and lead to numerous negative consequences. So, M. V. Kuznetsov says that after the collapse of the Skopinsky Bank, "the city was literally flooded with deceived depositors, among whom representatives of the clergy prevailed. Many of them became beggars, someone went mad, and a member of the Sapozhkovsky city council died suddenly in the bank premises at the moment when he signed an inventory of his property compiled by a bailiff" ^{[32, p. 98]}.

Considering the fact that according to the Regulation of 1862, not only the bank itself as an institution was responsible for the obligations of the city bank, but also its board and employees in case of violations, as well as the city society itself, then there is an assumption that first of all such a bank should be stable, and only then — commercially successful. Therefore, the work of the Ministry of Finance to strengthen regulation of the industry was aimed at overcoming the crisis by restoring depositors' confidence, undermined after the fall of the Skopinsky Bank, whose reporting first attracted depositors with its good performance, and then it turned out that it was mostly falsified.

It was the crisis that caused the increased regulation by the government. Bank failures, as well as overestimated high-quality assets and undervalued doubtful ones revealed during audits, confirmed that state intervention in the affairs of city banks was vital, since, obviously, many banks could not independently cope with the risks they took on themselves. A significant discrepancy in the reporting with the real state of affairs, even adjusted for the likely desire of the auditors to “blow on the water” and recognize even some reliable assets as doubtful, could lead to further falls in the image of the Skopinsky and Oryol banks.

Thus, the strengthening of regulation of the industry was quite an expected reaction of the state authorities to the crisis. The tightening of control, on the one hand, made it more difficult for banks to conduct business, on the other — forced them to put their assets in order. The need to restore the trust of depositors and improve the reliability of banks, whose decline could affect the financial situation of the cities with which they were connected, required quite drastic measures, which the Russian government eventually took.

Analysis of financial stability of urban banksCity public banks were institutions closely connected with local authorities, so their financial stability was of paramount importance, therefore, it is in this aspect that we further analyze the reporting of these banks.

However, based on historical data, it is difficult to apply the entire methodology for calculating indicators that assess risk management, therefore, taking into account the possibilities, three coefficients were selected, which primarily indicate whether the bank will be able to withstand adverse market conditions, and what consequences await the bank's creditors, in case of problems — the percentage of highly liquid assets in the balance sheet, the absolute liquidity ratio and the coefficient of autonomy (the percentage of equity in the balance sheet).

These indicators were calculated according to the annual balance sheets for each bank, then the average coefficients for the four groups were displayed: 1) banks that operated in 1878-1882 and survived by 1895, 2) banks that closed in 1878-1887, i.e. before the main wave of the crisis and in the first five years after its beginning in 1882, 3) banks that closed in 1888-1894, i.e. not necessarily in connection with the events of 1882, 4) banks that closed at different times in 1878-1890 according to their last balance sheet. The purpose of such an analysis is to find out whether there was a difference in the indicators of financial stability of problem and all other banks. Next, each of the three selected coefficients is considered sequentially.

Highly liquid assets in the balance sheet e, more precisely, the percentage of cash and similar highly liquid assets in the bank's balance sheet. Such assets of city banks can include cash directly in the cash register, current accounts of the banks themselves in the State Bank and private banks, as well as state and state-guaranteed securities in the portfolios of banks. The formula for calculating the coefficient looks like this:

This indicator does not have any recommended value when you can say that the bank is doing well or everything is bad, but it is attracted in order to assess how high the bank's risk appetite is. The lower the percentage of such highly liquid assets, the more confident and risk-prone the bank's management board is, since it is not afraid to put almost all of its cash into circulation, for example, for issuing loans.

Calculations for each group of banks are presented in Table 2, and Table 3 assesses the statistical significance of the difference between individual pairs of averages, i.e. it is concluded whether the difference between the two averages is significant. In the text, all estimates are made based on the significance level of 5% (the difference is significant if p < 0.05, the difference is not significant if p > 0.05), and also the calculated t-statistics and p values are given in Table 3.

Table 2. Highly liquid assets in the balance sheet, average for a group of banks, in %Cans

* — there are a total of 41 banks in the group, but for two of them there is no data on transactions for 1878.
** — hereafter: mean ± standard deviation.
Calculated according to: 1.1.1878 — ^{[22, Part III, pp. 35-51]}; 1.1.1882 — ^{[23, 1881, pp. 240-249]}; according to the last balance — ^{[39, pp. 117-121]}; 1.1.1895 — ^{[13, pp. 222-231]}.Table 3 Highly liquid assets in the balance sheet according to Table 2, two-sample t-test with different variances*

* — The Fisher criterion (F-test) is used to test the hypothesis of equality of variances (in this case, at a significance level of 0.05, this hypothesis is rejected).
Calculated by: see "Calculated by" to Table 2.In 1878, the share of highly liquid assets in the balance sheet of all groups of banks was, in fact, the same, 10.1–10.5%.

However, by 1882 the difference appeared. For banks that will close before 1887 inclusive, this indicator has fallen to 5.9%, i.e. their position has become more risky. The difference of this indicator (5.9%) with the same indicator for the surviving banks (9.5%) is statistically significant. Interestingly, the average coefficient calculated on the last balance sheet (7.5%) is higher than the average coefficient of future bankrupts (5.9%), and its difference with the indicator of surviving banks (9.5%) is not significant (statistically insignificant). Most likely, this is due to the fact that by the time of bankruptcy, many banks have reduced assets. In addition, if the bank did not go bankrupt, but liquidated its affairs in an organized manner, its cash register and highly liquid assets could be sufficient so that the coefficient would not decrease. An important change was observed by 1895 — the share of highly liquid assets increased on average compared to 1882 (from 9.5% to 16.4%, the difference is statistically significant), and this happened precisely due to an increase in highly liquid assets, and not due to a reduction in the balance sheet.

Thus, it can be concluded that the banks that closed before 1887 inclusive, by the beginning of 1882, left very few assets in case of any problems. The situation in the banks that survived the crisis was better, but also at the minimum values for this group. By 1895, the propensity to risk in the system of city banks as a whole had noticeably decreased.

The second indicator of financial stability used in our work is the absolute liquidity ratio, which demonstrates how the bank is able to fulfill its obligations to creditors. In other words, will the bank be able to cope with its obligations if there is a bank panic and depositors rush to the bank to take their investments. To some extent, banks were protected by the law, which left the bank a time interval between the depositor's demand and the immediate disbursement of money. Thus, the Regulation of 1862 states that the depositor is obliged to notify the bank of his intention to withdraw his money: "about the capital of not more than a thousand rubles — at least a week, from one thousand to three thousand rubles — for a month, from three to five thousand — for two months, and over five thousand rubles — three months before demand" ^{[35, article 36]}. Such restrictions, no doubt, allowed the bank to have time to find cash, but if there were a lot of depositors, but with small amounts, then a week or a month might not be enough, as in the case of the Skopinsky Bank, which was flooded with depositors from all over Russia, and the bank was unable to pay its obligations. Therefore, the absolute liquidity ratio as a whole should demonstrate the bank's ability to withstand such a flight of depositors.

The formula for calculating the coefficient had to be modified to suit the features of the balances of the XIX century . So, for urban public banks, it shows what percentage of current liabilities the bank is able to cover with its highly liquid assets — cash and equivalent funds. It should be borne in mind that the balances of the XIX century. they did not have a modern division into short-term and long-term obligations, therefore, current (short-term) obligations in our case are understood as obligations to depositors, but not to everyone, but only on indefinite deposits (analogous to modern deposits “on demand”), current accounts and interest payable on deposits of all terms. The amount of these obligations will continue to be called “fast deposits”. At the same time, due to the fact that there is no data in the balance sheets of banks about when the term of repayment of term deposits comes, the calculated indicators will be higher than they actually are. The indicator cannot be calculated for banks without deposits at all, or without quick deposits, and there are such in our data array. As a result, the formula for calculating the absolute liquidity ratio in our work looks like this:

The results of calculations of absolute liquidity coefficients are presented in Table 4, and Table 5 assesses the significance of the differences of some pairs of these coefficients according to the same criteria as in Table 3. In table 4, two coefficients are presented in each cell, separated by a "/" sign. The first of them is calculated by the method described above as the ratio of highly liquid funds to rapid deposits (method 1). However, for 1895, this ratio can be calculated only without the interest belonging to depositors, which in method 1 are included in the sum of fast deposits. This will be a calculation according to method 2. Thus, the second digit in each cell of Table 4 is a variant of calculating the coefficient according to method 2, so that it is possible to at least approximately compare the coefficients of 1895 with other years. Table 4. Absolute liquidity ratios, average for a group of banks, in %

Cans

* — here and further in the entire table: the first number (method 1) is the ratio of highly liquid assets to the amount of demand deposits, current accounts and interest owned by depositors; the second number (method 2) is the same indicator calculated without interest owned by depositors.
Calculated by: see "Calculated by" to Table 2.Table 5. Absolute liquidity coefficients according to Table 4, two-sample t-test with different variances*

* — The Fisher criterion (F-test) is used to test the hypothesis of equality of variances (in this case, at a significance level of 0.05, this hypothesis is rejected).
Calculated by: see "Calculated by" to Table 2.The absolute liquidity ratio has a recommended range of values from 50% to 100% ^[49].

At the same time, a value below 50% does not necessarily indicate a bad state of affairs in the bank, in this case, high-quality management of operations is necessary to attract exactly those amounts of money at the very moment when they need to be returned. However, a more important recommended indicator is the industry average, as it more accurately reflects the specifics of doing business in each specific case. Since our coefficients are calculated based on historical data, for which the methodology has been adjusted, we can suggest focusing on the coefficients of banks that have survived the crisis as the average for the industry.

The coefficients in Table 4 have another notable historical feature associated with the weak development of current accounts compared to term deposits in the second half of the XIX century. The indicators according to method 2 will be quite high due to the relatively small amount of perpetual deposits and current accounts in the denominator. Moreover, perpetual deposits and current accounts occupied a very different share in the liabilities of banks, so the calculated coefficients differ by an extremely large spread, which is not reflected in Table 4 so as not to overload it, but in almost all cases we are talking about coefficients in variation of 100% or more (coefficient of variation is the ratio of the standard deviation to average).

Let's compare the coefficients according to method 1 in Tables 4 and 5. In 1878, the surviving banks had an indicator of 50.6%, which can be considered the average for the industry. In two groups of banks that closed later, this ratio was lower — 32.1% and 34.0%. In a pair of 32.1% and 50.6%, the difference is significant at an error level of 5%, and in a pair of 34.0% and 50.6% — at a level of 10% (p = 0.065). It turns out that already in 1878 the future problem banks were potentially less stable.

By 1882, the situation in the banks, which were closed up to and including 1887, worsened. Their average absolute liquidity ratio dropped to 19.7%. This happened because these banks "sank" highly liquid funds as relatively fast deposits, as well as relative to assets in general, the latter followed from Tables 2 and 3.

The situation in the surviving banks has changed slightly, although they also had a downward trend in absolute liquidity. At the same time, the banks that left the market later, in 1888-1894, differed little from those that survived by 1882, i.e. they closed for other reasons than the failed banks of the earlier period. The group of banks represented by the last balance sheet before closing is also no different from the survivors. This can be explained by three reasons: 1) in this group there are banks that left the market later, at the end of the 1890s; 2) before closing, all banks had reduced deposits, including fast deposits; 3) some banks that decided to close down (liquidate cases) could increase the share of highly liquid funds by reducing other operations or asset sales.

By 1895, a completely different picture was observed with absolute liquidity, although one should be especially careful in estimates here, because comparisons are possible only by a limited method 2: by 1895, this indicator was 156.8% for all banks, whereas in 1882 it was only 66.1%, of course, this is a statistically significant difference.

As a result, banks that closed before 1887 inclusive, on the eve of the crisis, had reduced the ability to resist the flight of depositors, which made their situation more risky. By 1895, the situation with absolute liquidity had significantly improved compared to 1882 in the system of city banks as a whole.

The coefficient of autonomy, or the coefficient of financial independence, is the third indicator used in the work, which is calculated as the percentage of own capital in the balance sheet, or in liabilities. Own funds include fixed and reserve capital, as well as special reserve capital reflected in the balance sheet. The calculation of the indicator does not include charitable funds characteristic of city banks, which had a purpose, for example, for the maintenance of a hospital or school. The coefficient formula looks like this:

The autonomy coefficient is aimed not so much at checking the stability of the bank, but rather at assessing who will take the brunt of the blow in the event of its bankruptcy. If we follow the words of Ricardo, which were mentioned above, an institution can be called a bank when it attracts borrowed capital. The simplest way to get borrowed capital is the institution of deposits. Their involvement is the most effective tool for the bank to create sufficient capital for doing business. However, in the event of bankruptcy, the bank is not able to meet its obligations to its depositor creditors, other banks (in the case of re—accounting of promissory notes and re-mortgaging of loans) and the founders themselves who created the authorized capital. Thus, the percentage of equity in the balance sheet shows which share of liabilities belongs to the founders themselves, and which is the obligations to counterparties.

The indicator of financial independence helps to understand who, in essence, owns the bank. Despite the fact that from the point of view of law, the institution belongs to those who have invested in the authorized capital, it is not always possible for the management board of an enterprise to make independent decisions if the coefficient of financial autonomy is low, and some individual creditor or their group controls a significant part of the institution's debt. In the case of city banks, such creditors are depositors whose actions can be disastrous for the institution in such cases as a bank panic, so it is important for the bank to have sufficiently high financial independence to avoid situations when it is unable to pay its obligations.

Table 6. Autonomy coefficients, average for a group of banks, in %Cans

* — hereafter: mean ± standard deviation.
Calculated by: see "Calculated by" to Table 2. Table 7. Autonomy coefficients according to Table 6, two-sample t-test with different variances*

* — The Fisher criterion (F-test) is used to test the hypothesis of equality of variances (in this case, at a significance level of 0.05, this hypothesis is rejected).
** — for these pairs of averages, a two-sample t-test with the same variances was used, because for these cases, according to the Fisher Criterion (F-test), the hypothesis of equality of variances is not rejected (p-value for F > 0.05).
Calculated by: see "Calculated by" to Table 2.Table 6 shows the autonomy coefficients for groups of banks, and table 7 estimates the statistical significance of the differences of some pairs of these coefficients.

In 1878, four years before the crisis, the coefficient of autonomy of banks that would later close was 14.1–15.2%, while the surviving banks were slightly higher — 20.4%. In a pair of 15.2% and 20.4% (closed before 1887 inclusive and survived), the difference is significant with a slightly higher probability of error than 5% (p = 0.06). In a pair of 14.1% and 20.4% (closed in 1888-1894 and survived), the difference is significant with an error probability of less than 5%. By 1882, the coefficients of autonomy decreased slightly for all groups. However, the difference between surviving and closed banks is statistically significant in all cases. In the group of banks represented by the last balance sheet before closing, the autonomy coefficient was higher (27.1%) than the industry average in 1882. (judging by the surviving banks — 19.8%), with a statistically significant difference, because in many banks at the time of closure, some depositors had already managed to withdraw their money, and there was more equity in the balance sheet structure. By 1895, the coefficient of autonomy on average in the industry was at a much higher level than in 1882 (34.2% versus 19.8%), of course, with a statistically significant difference.

Thus, the banks that subsequently closed were much more active in attracting deposits and forming their assets at the expense of attracted capital, i.e. their financial autonomy was lower than that of the surviving banks. At the same time, in 1882, the financial independence of banks in the industry as a whole was weaker than in 1895.

Summing up the analysis of the financial stability of banks, it should be noted that in the operations of banks that closed during the crisis, alarming trends were noticeable in advance. A decrease in highly liquid assets in the balance sheet and indicators of absolute liquidity, a decrease in the share of equity in the balance sheet indicated prerequisites for a bad result in case of problems. While the market conditions were favorable, banks could operate while being in the zone of risky values of financial stability indicators, but as soon as the situation changed, serious problems could begin and many banks began. It is also important to note that after the crisis, when the failed banks left the market, and the survivors adjusted the structure of operations, the stability of the entire system of city banks increased markedly.

ConclusionThe crisis of the 1880s significantly affected the system of city public banks.

Taking into account the results of our research, the following picture is obtained. The starting point of panic among depositors was the fall of the Skopinsky Bank in the autumn of 1882 due to the accumulated consequences of fraudulent operations of its management. However, similar problems began to be identified in other banks, and the government audits that began recorded distortions in bank statements.

Nevertheless, even the reporting of 1877-1881, the credibility of which was actually undermined by subsequent events, provides material for calculating financial stability coefficients, which show a negative trend in the operations of those banks that later closed during the crisis. By January 1, 1882, such banks had minimal highly liquid funds in the balance sheet, absolute liquidity ratios and financial autonomy. It turns out that the future loser banks really did not care about risk insurance in case of any problems, throwing most of their highly liquid assets into circulation and remaining virtually defenseless in the event of depositors fleeing. Similar trends were observed in Russia as a whole, but on average other banks were more conservative than those that eventually closed before 1887 inclusive.

With risky values of financial stability indicators, it was possible to continue operations as long as the overall economic situation remained more or less favorable. Unfortunately, crises can be predicted, but they rarely occur exactly when they are expected. After the fact, it is clear that the fall of the Skopinsky bank was a matter of time, after depositors began to suspect something was wrong in the bank's affairs. However, for the city banking system as a whole, the Skopinsky collapse was a shock. Large—scale risky operations, not to mention fraudulent ones, together with falsified reports, first caused panic, and then government intervention - unstable banks with a high risk appetite were eliminated from the market. Such a cleansing of the system of city public banks could not pass without a trace for the rest of the banks that coped with the flight of depositors, because the structure of their operations was more secure, and then they were able to adapt their activities to the tightening of legislative requirements.

The data used in the work by January 1, 1895 are more reliable, because they relate to the period when the system of city banks was already put in order, and the audits forced banks to take a more responsible approach to reporting. According to the data of 1895, a significant improvement in all indicators of financial stability in the system of city banks as a whole is noticeable.

Given the social significance of urban banks noted in historiography, combined with the rather serious provisions of the law on the responsibility of urban societies in the event of bankruptcy of such banks, the actions of the government become understandable. Amendments to the law adopted in 1883 required city public banks to conduct more restrained risk management in order to save city societies from the likelihood of taking all these risks on local budgets. Thus, indicators of financial stability, rather than operational efficiency, were more important for urban public banks, since, judging by the ideas underlying the Regulations of 1862 and its subsequent editions, urban public banks were a kind of auxiliary tool for conservative investment of urban societies and for carrying out financial transactions necessary for the city, and were not full-fledged competitors for joint-stock banks and mutual credit companies.