Banking System, Tsarist

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From the time of Emancipation onward, Russian banks developed into the most important financial intermediaries of the empire. They performed the classic banking functions of collecting savings from the population and allocating loans to creditworthy borrowers. Initially Russian banks reflected the backwardness of the economy and society in many ways. The economy was still predominantly rural, and mining and manufacturing enterprises competed for resources with the government's needs for war finance and infrastructure and the nobility's hunger for loans. Commercial honesty was often unreliable, and therefore bankers had to be cautious in making loans to strangers, even for the short term.

Russian banks were more specialized than banks elsewhere. At the center was the State Bank (Gosudarstvenny Bank ), established in 1860 to replace the more primitive State Commercial Bank (founded in 1817) and informal arrangements among merchants and industrialists. It stabilized the ruble's foreign exchange value, issued paper currency, and accepted deposits from the treasury, whose tax sources were mostly seasonal. Because the government remained in deficit through the 1880s, in spite of the efforts of Finance Minister Mikhail von Reutern, the State Bank also accommodated the treasury with loans of cash. The State Bank helped further Russian interests in China and Persia. As time went on, it served as lender of last resort of the emerging private banks. When they experienced illiquidity as a result of unexpected withdrawals, the State Bank discounted their notes and securities so the private bankers could pay depositors. Such episodes were common during the recession of 19001902. Besides these central banking functions, the State Bank did some ordinary lending, discreetly favoring government projects such as railroad lines, ports, and grain elevators, as well as some private engineering, textile, and sugar ventures. For instance, the State Bank bought shares of the Baltic Ironworks on the premise that such firms, albeit private, had state significance.

The tsar's government also sponsored Savings Banks, which were frequently attached to post offices. These institutions expanded their urban branches during the 1860s and their rural outposts two decades later. They accepted interest-bearing accounts from small savers and invested in mortgages or government loans, notably for railroads.

Most Russian lending up to 1914 was backed by land mortgages, the most secure collateral at this time of rising land prices. Both the Peasants' Land Bank (founded 18821883) and the Nobility Bank (1885) made such loans to the rural classes by issuing bonds to the public with government guarantees of their interest payments. In addition to these banks, a large number of credit cooperatives made small loans to peasants and artisans.

Private commercial banks were the last to emerge in Russia. The founders of the main Moscow banks were textile manufacturers, while the directors of the St. Petersburg banks were often retired officials, financiers, or rich landowners. By 1875 there were thirty banks in St. Petersburg and Moscow; by 1914 the capital had 567 banks and Moscow had 153. In 1875 the five major banks had total assets of only 247 million rubles; by 1914 they would increase that figure nearly tenfold. Like all other Russian banks, private and joint-stock banks were subject to strict regulation by the Ministry of Finance, but after 1894 statutes were liberalized, and state funds were put at their disposal. Dealing at first with short-term commercial paper for business working capital, they gradually began to lend for mortgages on urban land and industrial projects. They also offered checking accounts to business customers, thereby reducing transaction costs over this vast empire. With interregional deliveries to make over long distances in difficult conditions, manufacturers might have to wait months for payments from merchants, who themselves had widely separated customers. For all of them short-term credit was crucial, as cash payments were inconvenient.

Instead of the British-type commercial banks typical of Moscow, which continued to deal in short-term loans, St. Petersburg's banks increasingly resembled the universal bank model typical of Germany. They helped float securities for urban improvements, mines, and other private enterprises against bonds and other securities as collateral without government guarantees. They also opened accounts secured by preferred shares with first call on dividends for investors who formerly might have demanded only fixed-interest obligations for their portfolios. The largest of the joint-stock banks attracted foreign capital, particularly from France and Belgium, as well as from the State Bank. Some of the larger heavy industrial projects so financed were profitable, like the South Russian Dniepr Metallurgical Company, but many others were over-promoted. According to Olga Crisp's calculation, based on data from Pavel Vasilievich Ol', foreigners held 45 percent of the total capital of the ten largest joint-stock banks by 1916.

As in central Europe, each large bank had special client companies on whose managing boards the bankers sat. They facilitated discounting of the affiliates' bills and marketing of their common stock. For example, Alexander Putilov, chairman of the famous Russo-Asiatic Bank, was also head of the Putilov engineering company, the historically famous Lena Goldfields Company, the Nikolayev Shipbuilding Company, and the Moscow-Kazan railways, and director of at least three petroleum companies. About 80 percent of the Russo-Asiatic Bank's equity capital was French-owned. The Azov-Don Bank, based in St. Petersburg after 1903, was heavily involved in coal, sugar, cement, and steel enterprises. The International Bank, heavily involved in shipbuilding, was 40 percent Germanowned. Occasionally these banks helped reorganize and recapitalize failing enterprises, thus extending their ownership control.

While demand for credit from private businessmen increased during the 1890s, the great efflorescence of tsarist banking came with the boom following the war and revolutions of 1904 to 1906. By 1913 there were more than one thousand private and joint-stock banks in the country, still mostly in the capitals, Warsaw, Odessa, and Baku. Securities held by the Russian public more than tripled between 1907 and World War I. Lending was increasingly for heavy industry and the highly profitable consumer goods industries, although the latter could often rely on retained profits. The role of the government thus declined as the main organ of capital accumulation to be replaced by the banks, as Alexander Gerschenkron has remarked.

As happened elsewhere, the Russian banks became somewhat more concentrated. In 1900 the six biggest commercial banks controlled 47 percent of deposits and other liabilities. By 1913 that share had risen to 55 percent. Marxists such as Vladimir Lenin believed concentration of finance capital, and these big capitalists' underwriting of the cartels, would bring on revolution. It seems highly doubtful that this would have happened in absence of war, however. In any case, all the tsarist banks were nationalized by the Bolsheviks in 1917.

See also: economy, tsarist; foreign trade; industrialization


Crisp, Olga. (1976). Studies in the Russian Economy before 1914. London: Macmillan.

Falkus, M. E. (1972). The Industrialization of Russia, 17001914. London: Papermac.

Gatrell, Peter. (1986). The Tsarist Economy, 18501917. New York: St. Martin's.

Gerschenkron, Alexander. (1962). Economic Backwardness in Historical Perspective. Cambridge, MA: Harvard University Press.

Kahan, Arcadius. (1989). Russian Economic History, ed. Roger Weiss. Chicago: University of Chicago Press.

Kaser, Michael C. (1978). "Russian Entrepreneurship." In The Cambridge Economic History of Europe, vol. VII: The Industrial Economies, Capital, Labour, and Enterprise, Part 2, The United States, Japan, and Russia, eds. Peter Mathias and M. M. Postan. London: Cambridge University Press.

Martin C. Spechler

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Banking System, Tsarist

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