Bank of Prussia

The Bank of Prussia, or Preußische Bank, was the principal central and note-issuing bank of the Kingdom of Prussia during the period leading up to German unification. It operated from 1 January 1847 until 1 January 1876, when the newly established Reichsbank succeeded it. Although the institution had private shareholders after its 1847 reorganization, the Prussian government retained decisive control over its management and policy. It therefore occupied an intermediate position between a state bank and a formally private financial corporation. The bank developed from the Prussian Royal Bank, founded by Frederick II, known as Frederick the Great, in 1765–1766. The earlier institution was created as a state-owned giro and lending bank, commonly referred to as the Königliche Giro- und Lehnbank or Königliche Hauptbank. Frederick II formally established it on 17 June 1765, but financial difficulties led to a revised charter on 29 October 1766 that authorized the issuance of banknotes. The bank began operating under the revised arrangement in 1767, which explains why 1766 is often treated as its practical founding date. Its Berlin premises were located at Jägerstrasse 34–35 in Friedrichswerder, in a building originally constructed in 1690 by Johann Arnold Nering for the chief huntmaster of Brandenburg. By about 1786, the bank occupied the entire building. The Royal Bank was affected severely by Prussia’s defeat by Napoleon at Jena and Auerstedt in 1806. Its equity capital became negative and remained impaired for many years. Convertibility was gradually restored during the 1820s and was fully achieved only in the 1830s. In practice, the Royal Bank functioned more like a savings and lending institution than a modern central bank, and its note circulation remained limited. The 1847 transformation created the Bank of Prussia. The old Royal Bank’s business was combined with new capital from individual investors. The Prussian state contributed approximately 1.2 million Reichstaler, while private investors contributed about 10 million Reichstaler. Shareholders received representation through an advisory body, but operational management remained under government influence. Christian Rother, the Prussian Minister of State who had also led the Royal Bank, became the first president. The institution faced a competitive monetary system in which several banks could issue notes. One of its central strategic objectives was to secure a monopoly, or at least dominant position, in money issuance. David Hansemann became its head in 1848 and advocated banking reforms, but his proposals were incompatible with the conservative Prussian government and he resigned in April 1851. In 1856, the bank obtained an unrestricted but non-exclusive privilege to issue notes. That same year, working with Conservative Interior Minister Ferdinand von Westphalen, it opposed the creation of additional joint-stock banks in Prussia. The financial panic of 1857 subsequently strengthened its standing as the leading note-issuing institution in Germany. The Bank of Prussia expanded its physical network substantially. It had 143 branches in 1867 and 167 by 1875, reflecting its growing role in payments, lending, and note circulation across Prussian territory. Its Berlin headquarters was rebuilt between 1869 and 1876 according to designs by architect Friedrich Hitzig. The completed building was taken over by the Reichsbank after the Bank of Prussia ceased to exist. The institution’s legacy lies in its transition from a state lending bank to a government-controlled shareholder bank and in its contribution to the development of centralized banking before the formation of the German Empire.

The Bank of Prussia was the successor to the Prussian Royal Bank and the leading banking institution of the Kingdom of Prussia during the nineteenth century. Its institutional origins lay in Frederick II’s decision to create a state-owned giro and lending bank. The Royal Bank was formally founded on 17 June 1765, but an amended charter issued on 29 October 1766 authorized banknote issuance and provided the basis for operations that began in 1767. For this reason, historical accounts may describe either 1765 or 1766 as the founding period. The original bank was based at Jägerstrasse 34–35 in Berlin’s Friedrichswerder district. Its building had been erected in 1690 by architect Johann Arnold Nering for the chief huntmaster of Brandenburg. The bank initially occupied only the ground floor, later taking over the whole structure by approximately 1786. Its early activities included giro services, lending, savings-related functions, and limited note issuance. It did not immediately resemble a modern central bank, since its principal role was that of a state financial institution supporting credit and deposits. The Napoleonic Wars created a major institutional crisis. After Prussia’s defeat at Jena and Auerstedt in 1806, the Royal Bank’s equity capital became negative. The damage persisted for an extended period. Convertibility was restored gradually in the 1820s and only fully reestablished in the 1830s. These difficulties limited the bank’s monetary credibility and contributed to its later restructuring. On 1 January 1847, the Royal Bank was reorganized as the Bank of Prussia. The new structure introduced private shareholders and additional equity while preserving strong governmental control. The Prussian state contributed the old bank’s business and approximately 1.2 million Reichstaler, while private investors provided about 10 million Reichstaler. Shareholders had an advisory role, but the bank’s management remained closely tied to the Prussian administration. Christian Rother, who had led the earlier Royal Bank, became its first president. The reconstituted bank operated in a fragmented German banking environment. Other institutions could issue notes, and the Bank of Prussia sought to obtain exclusive control over money issuance. David Hansemann led the institution from 1848, but his reform agenda encountered opposition from the conservative government. He resigned in April 1851. In 1856, the bank obtained an unrestricted, though non-exclusive, note-issuance privilege. In the same year it joined Interior Minister Ferdinand von Westphalen in opposing the establishment of new joint-stock banks in Prussia. The aftermath of the Panic of 1857 strengthened the bank’s reputation and influence, making it the pre-eminent note-issuing institution in Germany. The bank’s network expanded as its responsibilities grew. It operated 143 branches in 1867 and 167 by 1875. The expansion supported payments, lending, deposits, and note circulation throughout Prussia. Its Berlin headquarters was reconstructed between 1869 and 1876 according to plans by Friedrich Hitzig. The building was completed around the time the institution disappeared and was taken over by the Reichsbank. The Bank of Prussia ended on 1 January 1876, when the Reichsbank assumed its functions. Its history illustrates the gradual movement from state-sponsored banking toward centralized monetary administration. It also shows the political importance of note issuance, the limits of nominal private ownership under government supervision, and the role of financial crises in consolidating banking power.

• 1876

  Replaced by the Reichsbank

  [1]Bank of Prussiaen.wikipedia.org

  The Bank of Prussia ceased operations on 1 January and its functions and headquarters passed to the Reichsbank.

• 1875

  Branch network reaches 167 locations

  [1]Bank of Prussiaen.wikipedia.org

  The bank had expanded to 167 branches by the final year of its independent operation.

• 1869

  Berlin headquarters reconstruction begins

  [1]Bank of Prussiaen.wikipedia.org

  Reconstruction of the head office began according to designs by architect Friedrich Hitzig.

• 1867

  Branch network reaches 143 locations

  [1]Bank of Prussiaen.wikipedia.org

  The bank operated 143 branches as its regional banking network expanded.

• 1856

  Unrestricted note privilege granted

  [1]Bank of Prussiaen.wikipedia.org

  The bank received an unrestricted but non-exclusive privilege to issue notes.

• 1847

  Bank of Prussia begins operations

  [1]Bank of Prussiaen.wikipedia.org

  The Royal Bank was reorganized into the Bank of Prussia on 1 January, with new private capital and continued government influence.

• 1806

  War causes severe balance-sheet damage

  [1]Bank of Prussiaen.wikipedia.org

  Following Prussia’s defeat at Jena and Auerstedt, the Royal Bank’s equity capital became negative.

• 1767

  Royal Bank begins operations

  [1]Bank of Prussiaen.wikipedia.org

  The institution commenced operations under its revised charter.

• 1766

  Revised charter authorizes banknote issuance

  [1]Bank of Prussiaen.wikipedia.org

  A revised charter dated 29 October addressed the institution’s early financial problems and authorized it to issue banknotes.

• 1765

  Prussian Royal Bank founded

  [1]Bank of Prussiaen.wikipedia.org

  Frederick II formally founded the institution that later became the Bank of Prussia on 17 June.

A government-controlled central and note-issuing bank serving Prussia and competing with other German note-issuing institutions.

• Central banking · 1766

  Banknote issuance

  The Bank of Prussia issued banknotes under privileges granted by the Prussian authorities. Its issuance authority was limited in the early Royal Bank period, became unrestricted but non-exclusive in 1856, and formed a central part of the institution’s competition with other German note-issuing banks.

• Banking services · 1767

  Giro and payment services

  The institution’s original giro-bank function supported account-based transfers and payments. These services connected the state bank and its later successor institution with public bodies, commercial users, and regional branches across Prussian territory.

• Commercial banking · 1767

  Lending and credit

  Lending was a core activity inherited from the Prussian Royal Bank. The bank combined public-sector financial functions with credit provision and gradually developed a wider branch network capable of serving borrowers and commercial customers throughout Prussia.

• Retail banking · 1767

  Savings and deposit services

  The Royal Bank operated more like a savings institution than a modern central bank during much of its early history. Deposit and savings-related functions remained part of the institutional tradition that the Bank of Prussia carried into the nineteenth century.

• 1876

  Transfer functions to the ReichsbankM&A

  Background

  The creation of the Reichsbank provided a new centralized institution for German monetary and banking functions.

  Action taken

  The Bank of Prussia ceased operations and was succeeded by the Reichsbank on 1 January.

  Aftermath

  The Bank of Prussia disappeared as an independent institution, and its rebuilt Berlin headquarters was taken over by the Reichsbank.

  Source

• 1856

  Secure an unrestricted note-issuance privilegeStrategy

  Background

  The bank sought a dominant position in a fragmented German system where other banks also possessed note-issuing rights.

  Action taken

  The Bank of Prussia obtained an unrestricted but non-exclusive privilege to issue notes.

  Aftermath

  The privilege strengthened the bank’s competitive position, although it did not create a complete legal monopoly.

  Source

• 1856

  Oppose the creation of additional Prussian joint-stock banksOther

  Background

  The Bank of Prussia and conservative government officials were concerned about the development of competing joint-stock banking institutions.

  Action taken

  In cooperation with Interior Minister Ferdinand von Westphalen, the bank opposed the creation of new joint-stock banks in Prussia.

  Aftermath

  The policy limited the emergence of additional joint-stock banks in Prussia at that time; the only earlier case identified in the reference material was A. Schaaffhausen’scher Bankverein in 1848.

  Source

• 1847

  Reorganize the Royal Bank as the Bank of PrussiaStrategy

  Background

  The earlier Royal Bank had experienced financial difficulties and operated in a banking environment with limited note circulation and weak convertibility history.

  Action taken

  The Prussian state contributed the old bank’s business while private investors supplied most of the new equity capital. The resulting institution was formally private-sector in structure but remained under strong government control.

  Aftermath

  The reorganization created the principal Prussian institution for note issuance and banking operations until the establishment of the Reichsbank.

  Equity capital contribution. Approximately 1.2 million Reichstaler from the Prussian state and 10 million Reichstaler from private investors (1847)

  Source

1. 1Bank of Prussiaen.wikipedia.org