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The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931

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  • Isabel Schnabel

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

Abstract

Using monthly balance-sheet data of all major German credit banks, we analyze deposit with-drawals and bank failures in the German banking and currency crisis of 1931. We find that de-posit withdrawals were driven by the run on the currency, but were also related to banks’ liquidity positions; that branch banks were no more stable than unit banks; and that large banks were privileged, being bailed out and receiving preferential access to the discount window. These findings underline the importance of liquidity and implicit guarantees in twin crises, while they question the benefits of branching in such crises.

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File URL: http://www.coll.mpg.de/pdf_dat/2005_05online.pdf
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Bibliographic Info

Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2005_5.

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Length: 37 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:mpg:wpaper:2005_05

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Related research

Keywords: Twin crises; liquidity; implicit guarantees; “too big to fail”;

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  2. Kryzanowski, Lawrence & Roberts, Gordon S, 1993. "Canadian Banking Solvency, 1922-1940," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 361-76, August.
  3. Michael Berlemann & Kalin Hristov & Nikolay Nenovsky, 2002. "Lending of Last Resort, Moral Hazard and Twin Crises: Lessons from the Bulgarian Financial Crisis 1996/1997," William Davidson Institute Working Papers Series 464, William Davidson Institute at the University of Michigan.
  4. Harold James, 1984. "The Causes of the German Banking Crisis of 1931," Economic History Review, Economic History Society, vol. 37(1), pages 68-87, 02.
  5. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, May.
  6. Mark Carlson, 2001. "Are branch banks better survivors? Evidence from the Depression era," Finance and Economics Discussion Series 2001-51, Board of Governors of the Federal Reserve System (U.S.).
  7. Schumacher, Liliana, 2000. "Bank runs and currency run in a system without a safety net: Argentina and the 'tequila' shock," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 257-277, August.
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Citations

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Cited by:
  1. Reint Gropp & Hendrik Hakenes & Isabel Schnabel, 2010. "Competition, Risk-Shifting,and Public Bail-out Policies," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_05, Max Planck Institute for Research on Collective Goods.
  2. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2010. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_42, Max Planck Institute for Research on Collective Goods.
  3. Tobias Körner & Isabel Schnabel, 2013. "Abolishing Public Guarantees in the Absence of Market Discipline," Ruhr Economic Papers 0437, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Bindseil, Ulrich & Winkler, Adalbert, 2012. "Dual liquidity crises under alternative monetary frameworks: a financial accounts perspective," Working Paper Series 1478, European Central Bank.
  5. Alexander Schaefer & Isabel Schnabel & Beatrice Weder di Mauro, 2013. "Financial Sector Reform After the Crisis: Has Anything Happened?," Working Papers 1304, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 24 May 2013.

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