The Coevolution of Banks and Corporate Securities Markets: The Financing of Belgium's Industrial Take-Off in the 1830s

TL;DR

This paper examines how banks and securities markets in Belgium coevolved during the 1830s, highlighting the mutual influence of financial intermediaries and market conditions in early industrialization.

Contribution

It provides a detailed case study of the coevolution of banks and securities markets, emphasizing the roles of securitization and market-making in Belgium's early financial system.

Findings

Banks acted as securitizers of securities.

Banks also served as market-makers for issued securities.

Structural and cyclical factors influenced financial architecture changes.

Abstract

Recent developments in the literature on financial architecture suggest that banks and markets not only coexist, but also coevolve in ways that are non-neutral from the viewpoint of optimality. This article aims to analyse the concrete mechanisms of this coevolution by focusing on a very relevant case study: Belgium (the first Continental country to industrialize) at the time of the very first emergence of a modern financial system (the 1830s). The article shows that intermediaries played a crucial role in developing secondary securities markets (as banks acted as securitizers), but market conditions also had a strong feedback on banks' balance sheets and activities (as banks also acted as market-makers for the securities they had issued). The findings suggest that not only structural, but also cyclical factors can be important determinants of changes in financial architecture.