Amsterdam banking crisis of 1763
At this time prices of grain and other commodities were falling sharply, and the supply of credit dried up due to the decreased value of collateral goods.
Many of the banks based in Amsterdam were over-leveraged and were interlinked by complex financial instruments, making them vulnerable to a sudden tightening of credit availability.
Berlin then became an emerging market, and Amsterdam’s merchant bankers were the primary sources of credit, with the Hamburg banking houses serving as intermediaries between the two.
The building block of the acceptance loan was an instrument known as the bill of exchange — ultimately a contract to pay a fixed sum of money at a future date.
They were typically rolled over and became de facto short-term loans to finance longer-term projects, which resulted in the creation of a classic balance sheet maturity mismatch.
In addition, low acceptance fees—the fees paid to market participants for taking on the obligation to pay the bill of exchange—implied a perceived negligible risk.
However, the complexity of this system had underlying ramifications - the practice also resulted in binding market participants together through their balance sheets: one bank might have a receivable asset and a payable liability for the same bill of exchange, even when no goods were traded.
One of the fastest-growing merchant banks belonged to the De Neufville brothers, who speculated in depreciating currencies and endorsed a large number of bills of exchange.
Because of a grain shortage and famine in Prussia, the transaction could have been profitable for Gotzkowsky and De Neufville, the latter one secretly collaborating with two partners Stein and Leveaux, all collectors of art.
On 18 July the Russian senate refused this offer and insisted on being paid promptly and demanded payment in Dutch guilders, and not in debased Saxon coins.
Gotzkowsky had also an impressive number of paintings in stock which he accumulated during the war and managed a silkworks, a jewelry business, a porcelain factory (now KPM) that was not running at his satisfactory, all at the same time.
By the last half of the eighteenth century, their activities had expanded to include the settlement of bills denominated in current guilders, deposit taking, and even the issue of cashier’s receipts that circulated locally as banknotes.
The contraction of the bill market put the Amsterdam merchant bankers under heavy pressure, as their ability to roll over funding was several constricted.
In designing this program, a key political constraint was that the bank did not undercut the business of the mints, a major source of governmental revenue.
A combination of the system including the securitization of numerous embedded liabilities, a large shock to collateral values, and erratic policy decisions all came together to produce the Crisis.
