Expensive ventures often entail borrowing money and the banking system is one of the largest and most accessible lenders around. Their role in financing grand projects give banks the ability to make or break the dreams of developers, entrepreneurs, and even governments. Because the latter can approve, form, and regulate banks, governments are in the best position to use banks to their advantage and for centuries governments have made use of banks as tools for achieving their public policy objectives.

           In 19th century France, the reign of Napoleon III meant a departure from a more laissez faire period in French economic management. One of the new emperor’s grandest aims was the renovation of Paris, a set of large public works projects in the capital city. One bank closely associated with the state, Crédit Foncier, played a large but controversial role in financing these improvements.

Napoleon III and Haussmann

           The role of Crédit Foncier in financing public works in Paris was tied to the politics of France in the period best known as the ‘Second Empire’. Napoleon III, nephew of the more famous Napoleon, was elected President of France in 1848 but it was a coup in 1851 and a referendum that paved the way for this Napoleon to become emperor. In a country that had been rocked by revolutions before, the emperor was keen on avoiding others and saw improvements to public infrastructure as key to achieving that.

           Leading the project to improve Paris was Georges-Eugène Haussmann. Holding the post of Préfet de la Seine from 1853 to 1870, Haussmann had a reputation for being “an ogre for work, despotic, insolent, confident, full of initiative and daring”. For virtually the entirety of the Second Empire, Haussmann directed a transformative program of public works, the renovation of Paris, directly on behalf of the emperor. While to some extent intended to prevent future revolutions, the renovation was itself politically controversial. The era was defined by an uneasy balance between the authoritarian power of the emperor and the democratic power of the French parliament, with Haussmann firmly associated with the former.


           In the early 1850s, Paris was still a medieval city in a modern world. New railway stations connected the city to the rest of the country, and the rest of Europe, but traveling between these stations through Parisian streets was less seamless. Napoleon III and Haussmann both sought to turn the city into the gleaming capital of Europe. This entailed the clearance of slums, building new squares and parks, widened streets, a new central market, new bridges across the Seine, and the construction of water and sewer systems.

           The full nature of the improvements was informed by political considerations as well; wider boulevards and slum clearance were a solution to the barricades put up during revolts and protests in the past. Also designed to defuse revolutionary potential was the employment that would be created by the renovations.  

Paris (1878) with the Rue de Rivoli (far-left) and Boulevard Saint-Germain (right)

           The construction was so extensive that, by 1869, the cost of rebuilding Paris had reached 2.5 billion francs. For context, the regular municipal expenditures amounted to just 55 million francs per year. This cost was astronomical. Cost overruns had been frequent; renovations to one network of streets cost 410 million francs despite earlier estimates provided by engineers of ‘only’ 180 million francs. Rising property values, perhaps driven in part by the improvements underway, made the cost of condemning property ever higher.

           Funding some of the works were loans and subsidies approved by the French parliament, surpluses in the rest of the city budget, which grew from 18 million francs in 1852 to 80 million in 1869, and gains from the sale of properties following the completion of projects. This funding was insufficient for several reasons. Revenue from property sales would only be greatest once work was complete, meaning that this inflow would not be simultaneous with expenditures.

           Further, critics saw the costs incurred as exorbitant and the condemnation of so much property was itself contentious; foes were also blaming the works for increasing the cost of living in the city. For these and other reasons, parliament was now less enthusiastic about providing further funding for Haussmann’s renovation and was also hesitant to approve new municipal bond issues. There were worries the massive borrowing for Paris might crowd out the market for national government bonds. In the context of the Second Empire, every debate on public works, from the sizing of the Jardin du Luxembourg to the location of new bridges, became the opportunity for a political altercation between the emperor and parliament.

           It was not only politicians who did not share in Napoleon III and Haussmann’s ambitions for Paris. The banking community was also skeptical of the public borrowing and the city avoided them entirely by offering bonds directly to the public, a rarity in municipal finance in Paris up to then. However, conventional borrowing required parliamentary approval. Unable to obtain sufficient public money or approval for new municipal borrowing, the city searched for a new source of financing. In the end, it shifted the responsibility for financing projects to its contractors.

           In order to ensure capital was available to complete major projects, it was now the contractors who were required to raise the funds necessary to condemn existing property and complete its construction; they would only be paid after work was completed, usually in installments due over six or eight years. The city’s plan was that the installments could be paid through municipal budget surpluses in future years or refinanced when political circumstances were more favorable.

Crédit Foncier

           Of course, contractors were not in the business of raising capital and having it tied up for long periods of time. So, it is here where Crédit Foncier helped keep the renovation of Paris running uninterrupted. Appropriately enough, Crédit Foncier specialized in real estate; it was a mortgage bank formed by government decree in 1852 with a capital of 25 million francs. This was later increased to 60 million francs. The bank used this capital to make long-term loans secured by real estate. Its mortgages, though conservative, provided much longer-term financing than other lenders would grant. Loans were typically made in amounts up to 50% of the mortgaged property’s value but for terms of thirty to fifty years.

           Crédit Foncier was established by decree and though it had private shareholders, it was controlled by the government which appointed its governor and deputy-governors. The bank was accordingly used to further the government’s objectives. The bank nevertheless benefited from this arrangement, including from an implicit government guarantee of its obligations.

           The bank remained close to the government and was given special privileges. Crédit Foncier was the only bank allowed to issue mortgage-backed bonds on the stock exchange. In large part thanks to its access to capital, the bank became the largest mortgage lender in France; in Paris, the bank was making nearly half of all mortgage loans by the 1860s. The firm also had a monopoly on distributing municipal bonds.

           Crédit Foncier served contractors working on the renovation of Paris by advancing on payments due to them in the future by the city government. The bank essentially purchased from contractors certain bills called bons de delegation, or ‘delegation bonds’. Though the transactions were between the bank and contractors, here too the bank collaborated with the state.

           In 1863, when a contractor, Ardoin, Ricardo et Cie., found itself in financial distress, Crédit Foncier agreed to discount all amounts due to the firm, providing it the liquidity with which to continue operations. This was peculiar because the bank would typically only advance funds against amounts due to the contractors for already completed projects and not those tied to work in progress. Nonetheless, the city encouraged Crédit Foncier to extend funds by regarding as ‘completed’, at least for the purpose of making payments under the bons de delegation, any of the projects for which the bank advanced funds. The city justified this maneuver by holding that in advancing funds, the bank was providing the money necessary to assure completion of the project.

           By operations such as this, Crédit Foncier essentially provided financing for the renovation of Paris without the city having to secure legislative approval for new borrowing. As the bank did this, it accumulated more and more bons de delegation; it had almost 400 million francs tied up in bons de delegation by 1869. The bank’s public reports did not disclose that this amount was due from the city of Paris, keeping the financing secret from the politicians.

           Because the financing was technically extended by the bank to the contractors, it was easy to keep it hidden from public scrutiny, enabling Haussmann to continue making progress without the distractions thrown up by the democratic process. The bank of course was not extending mere favors and its profitability grew as it became the chief financial partner in the rebuilding of Paris. Crédit Foncier doubled its annual dividend between 1861 and 1868.


           The role of Crédit Foncier did not remain secret forever. When the financing provided by the bank became public knowledge, political opponents of Napoleon III and his ministers accused Haussmann of raising illegal debts. Haussmann sensibly argued that the transactions were between the bank and the contractors; the city government was not a party to these transactions and they did not involve any new commitments made by the city.

           Of course, indirectly, the bank financed the improvements because it allowed contractors to meet the financial costs of working on their projects after the city shifted onto them the responsibility for raising funds. In any case, to those who saw the renovation as an unnecessary, exorbitant, and undemocratic project, this was as good a reason as any to bring up the renovation once more in parliament and in the press.

           With parliamentarians and others calling the bons de delegation illegal, Crédit Foncier had plenty of reason to be alarmed. These accusations may have encouraged the bank to seek to have its delegation bonds consolidated into a far more conventional loan. An agreement to this effect was signed in November 1867, consolidating almost 400 million francs into a single longer-term loan under which the city would make semiannual payments over the next sixty years.

           Despite this, in the parliamentary debates over the agreement’s approval, opposition remained strong and the government chose to concede that its financing of the renovations had been ‘irregular’, though not ‘illegal’. Regardless, Haussmann was dismissed from his position, after seventeen years, to placate the politicians. As it happens, he later became the director of Crédit Mobilier, another Paris bank, and even served as a member of parliament in later years. The agreement with Crédit Foncier was approved after two years but only with a provision that the city float a new loan to pay off the bank early, reducing the special and disproportionate role the bank had in financing improvements in Paris.


           Banks provide dependable funding, expediency, and some measure of secrecy and not only to private companies. For these reasons, governments as well have always had interest in banks and, in certain times and places, are frequent users of their services. Banks can benefit from this interest as Crédit Foncier benefited from its role in the renovation of Paris. However, it isn’t without risks; Crédit Foncier found itself threatened by political quarrels between emperor and parliament that had already sank the public career of Haussmann himself, the architect of the renovations. In the end, the bank’s operations were accepted by the French parliament and the consolidation of its bons de delegation approved just before Napoleon III’s Second Empire came crashing down in 1870.

More from the Tontine Coffee-House

          Read about another bank associated with Second Empire France, Crédit Mobilier, which happened to be founded the same year as Crédit Foncier. The more famous Napoleon I played a critical role in forming the Banque de France. Also, consider subscribing to this blog’s newsletter here.

Further Reading

1.      “Crédit Foncier.” Encyclopædia Britannica, vol. 7, 1911.

2.      Hoffman, Philip T., et al. Priceless Markets: the Political Economy of Credit in Paris, 1660-1870. The University of Chicago Press, 2001.

3.      Moses, Robert. “What Happened to Haussmann.” Architectural Forum, vol. 77, July 1942, pp. 57–66.

4.      Pinkney, David H. “Money and Politics in the Rebuilding of Paris, 1860–1870.” The Journal of Economic History, vol. 17, no. 1, 1957, pp. 45–61.

5.      Pinkney, David H. “VIII – Money and Politics.” Napoleon III and the Rebuilding of Paris, Princeton University Press, 2019, pp. 174–209.

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