Names, shares and mortgages: the formalisation of Swedish commercial bank lending, 1870–1938

Abstract

This article explores the process of the formalisation of the Swedish financial market, through an analysis of commercial bank lending in the late nineteenth and early twentieth century. The analysis shows that the incorporation of Swedish business around the turn of the century led to a shift from lending primarily backed by name security to an increased use of mortgage and shares as collateral – after the severe stock market crash in 1920/1 mortgage lending surpassed lending against shares as collateral. We interpret this change as an important part of the formalisation process of the financial system, as it standardised the valuation process and allowed creditors to exit on a secondary market. Our statistical testing points to increased financial wealth and liquidity represented by the broad money supply, plus population growth and urbanisation, as important forces behind this formalisation.