Financial Crises and the Publication of the Financial Statements of Banks in Spain, 1844-1868
Lloréns, Mercedes Bernal, The Accounting Historians Journal
Abstract: Financial crises have had a decisive influence on banking regulations in Spain. During the mid-19th century the publication of the financial statements of banks was considered key to the stability of the financial system. All new joint stock banking companies were to publish their statements in the Madrid Gazette in return for the privilege of limited liability. Similar obligations were placed on issuing banks. The copious publication of financial statements coincided with a period of financial prosperity. However, the crises that followed from 1864 to 1868 led to a reduction in the official publication of statements. This paper is concerned with an early response to crises in financial reporting. The study focuses on the relationship between the publication of accounting statements by banks and the GDP in Spain during the mid-19th century. The results suggest that the frequency of publication of financial statements may be an indicator of economic performance.
As Hernández [1996a, p. 92] has noted, the ideas that helped to shape modern-day accounting in Spain originated in the 19th century. A number of short papers on accounting regulation in 19th century Spain have been published [Goxens, 1985; Fernández, 1988; Giner, 1993]. Explanations for change and the political, economic and social contexts in which it occurred have also been analyzed [Bernai, 2000]. Annisette and Macías  revealed the financial reporting practices of the Banco de España. However, none of these contributions have investigated changes in the accounting regulation of joint stock banking companies as a response to crises. Neither has there been any research into the relationship between financial disclosure and the trajectory of the economic cycle in mid-19th century Spain.
Kindleberger  views the financial crisis of the 19th century as a key turning point in the business cycle and as the inevitable consequence of the preceding boom. He stresses the role of adverse expectations, forced liquidation and debt deflation. It has often been suggested that accounting regulation has changed as a response to financial crises and scandals [Previts and Merino, 1979, pp. 270-276; Merino and Neimark, 1982, p. 45; Walker, 1996, pp. 312-319; Bernal, 2000]. The shock effect of financial scandal has long been the catalyst for convincing legislators, businessmen and accountants of the need for reform [Edwards, 1996, pp. 66-67].
In Victorian Britain the lack of compulsory financial disclosure pertaining to manufacturing concerns contrasted with the reporting practices of public utilities, insurance companies, banks, and railroads, whose activities were more closely regulated and reported [Hawkins, 1963, p. 137]. Parker [1990, p. 69] explains the differential treatment of public utilities and regulated companies as being "for reasons of monopoly, privilege and safety, not just, or even primarily, for the protection of shareholders". The British Parliament was not slow to legislate for increased disclosure in the case of particular sectors of the economy, especially where public interest had been aroused as a consequence of financial scandals, such as the City of Glasgow crash in 1878 [Napier and Noke, 1992, pp. 37-38; Walker, 1998].1 Conversely, Bordo [1986, p. 191] argues that one of the key elements of a financial crisis is the fact that "Runs on particular banks . . . could lead to a general banking panic, where the public at large, fearful of suffering severe losses on their deposits should the banks fail, or of paying a premium on currency in the event of a suspension of payments, attempts to convert deposits into currency". This situation can result in a significant reduction in the official publication of financial statements.
In this paper, I examine the essential features of the financial crises that occurred in Spain between 1844 and 1868, their influence on accounting regulation, and the publication of financial statements of the joint stock banking companies in the Madrid Gazette. …