The nobles below instantly became agitated, “You can’t do this!”
“What will we do if those banks go bankrupt?”
“We shall petition Her Majesty the Queen!”
“I have some good news for everyone,” Brian’s voice calmed the crowd, “The Bank of France Reserve will acquire Belanger Bank, taking over the previous debts of the bank.”
The bulk of the bank’s debt was the nobles’ investments.
The nobles of the “Necker Alliance” burst into cheers, “Acquisition? That’s excellent!”
“Long live His Majesty the King! Long live the Bank of France Reserve!”
“We are saved at last!”
However, some quick-witted nobles immediately spotted the problem and asked loudly, “Archbishop Brian, does the Bank of France Reserve have sufficient funds?”
“Yes! There may be more banks with issues in the future, is the Bank of France Reserve going to acquire them too?”
Brian nodded, “Yes. The government will take a share in the Bank of France Reserve. With the bank’s existing assets, there should be tens of millions of funds.”
Before the nobles could raise any objections, Joseph stepped forward and said, “Indeed, these funds are far from enough to cover your investments in the banks, but illegal banks must also be punished!
“So, the benevolent Queen has decided to set up the French Industrial Development Fund to protect everyone’s money from loss.”
He then explained the purpose of the fund, concluding with:
“All investment certificates from banks acquired by the Bank of France Reserve can be invested in the industrial development fund.”
His words immediately triggered painful memories of the “Mississippi Company fraud” among the crowd—where John Law had once had people exchange government bonds for shares in the Mississippi Company, ending in massive losses.
An intense wave of protest erupted from the nobles. Joseph waited for them to quiet down before brandishing a document, “The industrial development fund is guaranteed by the Bank of France Reserve and the finances of France.
“Firstly, the accounts of the fund will be completely transparent, and any customer investing over 500,000 livres can inspect the accounts at any time.
“The fund will announce its budget at the beginning of each year. It will also publish a financial statement every six months, detailing earnings.”
“Furthermore, we will require all companies receiving investment to likewise disclose their operations and accept financial audits from the fund.”
“Lastly, all affairs of the fund will be decided by the fund committee, without government interference.”
Transparency and open accounting, commonplace in later times, were highly progressive in the 18th century. Even the most transparently managed companies like the British East India Company were far from this level of openness.
Upon hearing this, the nobles below began to whisper among themselves, and the “plants” arranged by Joseph in advance also began to chime in:
“If we can check the accounts at any time, that seems very secure.”
“Mainly, with the guarantee of the Bank of France Reserve and government finances, I think there’s no problem.”
“Plus, it’s an investment in domestic industries, unlike the distant American ‘gold mines,’ where we can see the operational conditions all the time.”
Their comments influenced more people, and before long, the nobles began nodding in agreement.
Viscount Protodem and his ilk, seeing the tide turn against them, loudly said, “What fund? Who knows how it will be managed in the future? It’s safest to halt Necker’s trial!”
Joseph sneered, “Archbishop Brian has just said, the case must be thoroughly investigated!”
“Then we can only consider not lending money to the government anymore…”
No sooner had Viscount Protodem finished his sentence than Joseph’s “plants” began to murmur to those around them, “I think, it’s impossible for everyone to stop lending money to the government.”
“Why? Didn’t we succeed that time we refused to pay taxes?”
“Hehe, that was about giving money away. If you say no, of course everyone would agree. But this is about lending money to the government, where you can earn interest.”
“I guess in the end, everyone will say they won’t lend, but in private, it’ll be the same as ever.”
“Yes, they deceived us by not lending money to the government, and after the interest on government bonds went up, they invested in secret,”
“Now, lending to the government seems the safest option. Look at what happened when investments were made in banks; such a huge trouble it caused.”
In just over ten minutes, the nobles became unwilling to bring up the matter of “refusing to lend money to the government”—previously mentioned as a means of blackmailing the Royal Family. But now, with the solution provided by the French Industrial Development Fund, who would want to quarrel with interest rates?
At that moment, a messenger reined in his horse not far away and hurried over, delivering a letter to Brian.
After quickly skimming through the letter, the latter loudly announced, “Just now, it was confirmed that Necker had three illegal transactions with Klassen Bank. Eleven bank managers were arrested, and an exhaustive inspection of the bank’s accounts is underway.”
The nobles present immediately panicked, especially those with investments in Klassen Bank, breaking out in profuse sweat.
Based on the situation with Belanger Bank previously, a bank under scrutiny would likely go bankrupt soon. Their money was going to be lost!
In reality, if these banks operated normally, even when illegal issues surfaced, they could finance the payment of fines and recover after a few years.
However, the Duke of Orleans, in an attempt to force the French finances into a corner, caused Belanger Bank to go bankrupt at breakneck speed, terrifying the investing nobility. This led other nobles to withdraw their money from various banks, severely tightening the banks’ capital.
Now, with the Necker case on their hands, the banks had no ability to manage their funds, leaving bankruptcy as the only option.
Of course, the timing of announcing Klassen Bank’s troubles was also prearranged by Joseph.
The nobles on the scene couldn’t hold back any longer, especially those who invested in Klassen Bank, shouting loudly, “I’m willing to transfer the money in the bank to invest in the Industrial Development Fund!”
“I am also investing, please give me a copy of the agreement!”
“I want one too!”
“And me…”
Joseph stepped forward at just the right moment, signaling for everyone to be quiet, “I must clarify one point in advance: if you are transferring bank investments to the Industrial Development Fund, you must wait five years before you can withdraw all of the principal.”
This was the key to the “bond-to-fund” model—to buffer the panic and prevent a run on the banks by the investing nobility. Actually, if the fund were profitable, they likely wouldn’t withdraw their funds after five years. Who wouldn’t want to make money?
Upon hearing “not until after five years,” people hesitated again.
Brian, following the script, delivered the final hit, “To ensure the safety of everyone’s investments, the French Industrial Development Fund guarantees a full refund of the investment if there is a loss for six consecutive months. If the fund’s capital is insufficient, the French Treasury will take over and pay the debts!”
The eyes of the nobles present immediately lit up again.
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If the fund makes money, just sit back and enjoy the profits. If it loses money, the government guarantee ensures the return of the investment.
What’s there to worry about?
Even with potential risks, they couldn’t be bothered with that now; transferring their money to the Industrial Development Fund was far better than it going up in smoke with a bank’s bankruptcy.
Brian’s officers immediately signaled to the crowd that they could visit the Finance Minister’s office to collect the “bond-to-fund” agreement.
Almost instantly, the crowd in front of the Palace of Versailles disappeared without a trace. Viscount Protodem, seeing that he couldn’t stop the crowd, frowned and hesitated for a few seconds before quietly making his way upstairs.
Around midday, the King and Queen personally held a ceremony to establish the “French Industrial Development Fund,” once again endorsing the fund in their royal capacity.
As the news spread, nobles involved in bank investments rushed to the Finance Minister’s office, and soon the doors of the office were overwhelmed and broken by the crowd.
A day later, under tremendous pressure from Carolina, Necker finally collapsed—his shady dealings with the banks were accurately reconstructed by them, resulting in the downfall of two banks already.
After receiving a promise of leniency for his confession, Necker spilled all the beans about his illegal transactions with the banks.
Carolina also breathed a sigh of relief.
He had placed the cases with more evidence and was confident of their outcome in the front, which is why he could process them so quickly.
If Necker kept mum, the following investigations would have slowed down significantly, with nearly half of the transactions being ones he wasn’t confident he could resolve.
But Necker surrendered. A major earthquake in the French banking industry was coming!