One of the special aspects of the 1763 crisis is that this crisis does not fall neatly into the Kindleberger model of a bank run. One possible explanation for this is that, at that time, banks were fairly underdeveloped if evaluated by to the nowadays criteria. Thus, it was not characteristic of those banks to cooperate closely with the private sector (e.g. to admit retail deposits or to provide extended opportunities for cash loans). As a rule, their role confined to “the payments system associated with the trade in goods” and so the most powerful bankers were mainly merchants (Schnabel and Shin 2).
Thereby, the 1763 crisis does not comply with Kindleberger’s bank run model, according to which the core problem is the bank vulnerability (190). While speaking about the 1763 crisis, it should be also pointed out that the main creditor nation at that time was Holland so that the crisis would predictably burst out in Amsterdam. The contagion would quickly spread across Europe though: Amsterdam failures would be shortly followed by Hamburg failures and later on, by Berlin failures (Schnabel and Shin 2). Another distinctive feature of the 1763 crisis can be described as “the increased leverage in the balance sheets of
market participants in the run-up to the crisis”(Schnabel and Shin 3). The increase in leverage could be explained by such financial innovations as exchange bills.
An important role in the 1763 crisis was played by the DeNeufville Brothers bank. The failure of this bank determined largely the general market climate. Kindleberger explains that the failure of the DeNeufville Brothers “produced a panic in Hamburg, Berlin, and to a lesser extent in London as well as in Amsterdam because a particularly impressive chain of bills was unraveled” (66). Thus, if the failure of a singular house would result in the collapse of the entire chain. Following the example of many Dutch companies, DeNeufville Brothers sold “commodities, ships, and securities” (Kindleberger 51).
While discussing the 1763 crisis, many experts draw parallels to the events of the 1998 crisis which it foreshadowed. Thus, for example, Schnabel and Shin argue that neither the 1763 crisis nor the LTCM crisis comply with the classic models for crisis explanation. Similarly, they do not comply with the classic model for bank run explanation as discussed above: as Schnabel and Shin explain it, “the institutions involved were not deposit banks financed through demand deposits with sequential service constraints” (Schnabel and Shin 40). None of the two crises was triggered by anxious investors who would promptly collect their stimulating the institutional breakdown. Another common trait that can be defined in relation to the two crises is that they do not fit in the so-called “moral-hazard story” (Schnabel and Shin 41). Thus, such models normally imply the presence of a large number of uninformed actors what is inapplicable to none of the two crises.
Instead, it would be more correct to claim that the key actors (e.g. creditors) were represented by a limited number of rich and knowledgeable market players. Moreover, the key similarity between the two crises is the fundamental cause underpinning them. According to Schnabel and Shin, this fundamental cause is liquidity (41). They explain that the liquidity problem induced the market players to sell their assets at the highly unbeneficial prices. As to the possibility of a systemic meltdown, its extent was different for each crisis: whereas it was relatively high to the 1763 crisis, in the 1998 crisis, this possibility might have been exaggerated largely (Schnabel and Shin 42). In this regard, Schnabel and Shin explain that this possibility becomes real “in a situation where banks are connected through interlocking obligations and, in addition, have very similar trading positions” (42).