# Caisse d'Escompte

The Caisse d'Escompte (lit. 'discount bank') was a French financial institution and bank of issue during the last third of the 18th century. It was the next attempt to create a central bank following the collapse of John Law's Bank in 1720, and a predecessor to the Bank of France established in 1800, which was largely modeled on it.
The Caisse d'Escompte was established by financier Isaac Panchaud [fr] in 1776 under king Louis XVI. Despite frequent episodes of stress linked to France's overall fragile financial situation, it had a promising start until the French Revolution when it suffered from the general financial turmoil. It was eventually terminated by executive order of the National Convention on 24 August 1793.

## Background

The searing boom-and-bust experience with Law's system in 1719-1720 delayed consideration of re-establishing a central bank in France, despite challenges with the existing system of commodity money and credit provided by individual bankers. Proposals to create a new national bank of issue were made by various scholars and analysts. Thus for example François Véron Duverger de Forbonnais, in a 1755 essay titled Mémoires pour l’établissement d’un crédit public, recommended the creation of an institution modeled on the Bank of England that would monetize France's government debt and facilitate state financing.$^{:192}$
In April 1767, a new bank was established under the direction of Jean-Joseph de Laborde, banker to the king, to address the financial stress at the French Indies Company. This entity was called Caisse d'Escompte but turned out to be short-lived given the Indies Company's continued difficulties, and was eventually wound up in 1769 together with the Indies Company itself.

## Creation and early development

Financier Isaac Panchaud created the second Caisse d'Escompte on 22 September 1776, with the support of Anne Robert Jacques Turgot and with inspiration from the Bank of England and Bank of Scotland following advice given to Turgot by Scottish merchant Thomas Sutton de Clonard.$^{:4}$ The new bank was tasked with discounting bills of exchange and other commercial instruments in order to lower the interest rate on commercial credit and to facilitate trade. It also bought existing government debt in the market and lent back to the French state at the capped rate of 4 percent. The bank was initially capitalized at 15 million livres, divided into 5,000 shares of 3,000 livres each. The new bank had its seat on rue Vivienne [fr], next to the Paris Bourse and to where John Law's Bank was located during its last year of activity.
Panchaud remained in charge of management for the first few years. He encountered great difficulty in raising the capital, which was reduced to 12 million in March 1779. The dividend was set at 1 percent, below market expectations, so that a collective effort by existing Parisian private bankers was needed to close the subscription.
The Caisse d'Escompte issued its first banknotes in January 1777. In April 1778, eight new Directors were elected, namely the bankers Jacques-Jean Le Couteulx du Molay [fr], Louis Tourton, Théodore Rilliet, Pierre Cottin, Jean Girardot de Marigny, Jean-Baptiste Vandenyver, Jean-Pierre Louis Pache de Montguyon, and Jean-Louis Julien. From 1781 to 1783 (as again in 1791) the lead director was Parisian banker Étienne Delessert. During the American Revolutionary War, the Caisse d'Escompte started buying government debt securities, not least on the international market.

## Turmoil episodes of the 1780s

In the first quarter of 1783, the bank experienced distress related to the development of the American War and fears that the American government may not repay all its debts. In November 1783, the value of the bank's shares listed on the Paris Bourse fell from 5,000 to 3,000 livres. The French Treasury led a rescue by withdrawing banknotes from circulation and recapitalizing the bank via a lottery loan that was well subscribed by individual investors. Thus the bank's capital was raised to 15 million livres, and the share price recovered. Panchaud, together with the young Charles Maurice de Talleyrand-Périgord, proposed a new financing plan that was well received by shareholders. On 27 January 1784, the general meeting increased the board's size to 13 directors and decided that the bank would keep at least 25 percent of its volume of money circulating in banknotes, in specie in its vaults.
Charles Alexandre de Calonne endeavored to expand the capital of the Caisse d'Escompte to attract more subscribers with the aim to provide more lending to the Treasury. In June 1787, the stock price reached 12,440 livres, with large volumes of market trading activity. During the summer, however, a poor harvest and rumors about Calonne's future led to significant withdrawals from the bank which depleted its cash reserve. More severe stress started in the next summer, following the announcement on 8 August 1788 of the Estates General of 1789. On 17 August, an edict of the king's council suspended the convertibility of the banknotes (a decision referred to as cours forcé). The resulting loss of confidence led to the resignation of Controller-General of Finances Étienne Charles de Loménie de Brienne on 25 August 1788. Antoine Lavoisier was subsequently appointed as administrator of the Caisse d'Escompte. In an address to the Estates General on 17 June 1789, Lavoisier recommended the bank's nationalization, which was supported by Mirabeau who was among its longstanding critics.
Jacques Necker, who had replaced Loménie de Brienne in late August 1788, increasingly drew on the Caisse d'Escompte to finance the government, and the bank's directors failed to limit the corresponding exposure. The bank also had high exposure to the Spanish Banco Nacional de San Carlos [es] whose own financial challenges further weakened its position.

## Revolution and liquidation

In November 1789, in a context of severe cash scarcity, the Municipality of Paris established an office where anyone could exchange banknotes of the Caisse d'Escompte against écu coins. The Finance Committee of the National Constituent Assembly, led by Pierre Samuel du Pont de Nemours, reviewed the accounts of the Caisse d'Escompte together with those of the Public Treasury and authorized repayment of some of the government's debt. During 1790, however, the Treasury reduced the ability of the bank to discount treasury bills, thus eroding trust among holders. The cash scarcity worsened. On 15 March 1791, new legislation ordered that notes of the Caisse d'Escompte be exchanged against the government notes known as assignats, which hence became the only paper money in circulation.
The Caisse d'Escompte was liquidated by decree of 24 August 1793. Two members of the National Convention, Pierre-Joseph Cambon and Pierre-Marie Delaunay [fr], were appointed auditors of the sealed accounts. The Compagnie de Calonne was liquidated simultaneously, together with all other joint-stock companies such as the Paris Water Company. Delaunay was soon embroiled in controversy, arrested for corruption, and executed by the guillotine on 5 April 1794. André-Daniel Laffon de Ladebat remained then as the main liquidator and took over a decade to complete the task.

## Aftermath

Following the liquidation of the Caisse d'Escompte, France experienced a period of free banking with a number of banks of issue simultaneously issuing their own paper money. These included the the Caisse des Comptes Courants, founded in 1796, and the Caisse d'Escompte du Commerce, founded in 1797. Napoleon eventually founded the Bank of France in 1800, largely modeled on the defunct Caisse d'Escompte.