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London Merchant Banks, the Central European Panic, and the Sterling Crisis of 1931

  • ACCOMINOTTI, OLIVIER

The Central European panic of the spring 1931 is often presented as a cause of the sterling crisis of September. But what was the transmission channel? This article explores how the continent's financial troubles affected Britain's banking system. The freeze of Central European assets created a liquidity strain for London merchant banks because they had accepted (guaranteed) the commercial bills of German merchants. I use new balance sheet data to quantify this shock and explore how the liquidity crisis contributed to the sterling crisis. The evidence demonstrates that international contagion was crucial in transmitting the 1931 global financial crisis.

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Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 72 (2012)
Issue (Month): 01 (March)
Pages: 1-43

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Handle: RePEc:cup:jechis:v:72:y:2012:i:01:p:1-43_00
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  1. Eichengreen, Barry & Sachs, Jeffrey, 1985. "Exchange Rates and Economic Recovery in the 1930s," The Journal of Economic History, Cambridge University Press, vol. 45(04), pages 925-946, December.
  2. Schnabel, Isabel, 2002. "The German Twin Crisis of 1931," Sonderforschungsbereich 504 Publications 02-48, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  3. 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.
  4. Accominotti, Olivier, 2009. "The sterling trap: foreign reserves management at the Bank of France, 1928–1936," European Review of Economic History, Cambridge University Press, vol. 13(03), pages 349-376, December.
  5. Roberto Chang & Andres Velasco, 1997. "Financial fragility and the exchange rate regime," Working Paper 97-16, Federal Reserve Bank of Atlanta.
  6. Richardson, Gary & Van Horn, Patrick, 2009. "Intensified Regulatory Scrutiny and Bank Distress in New York City During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 69(02), pages 446-465, June.
  7. Timothy W. Guinnane, 2004. "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement," Working Papers 880, Economic Growth Center, Yale University.
  8. Albrecht Ritschl & Samad Sarferaz, 2010. "Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931," SFB 649 Discussion Papers SFB649DP2010-014, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  9. Isabel Schnabel & Hyun Song Shin, 2004. "Liquidity and Contagion: The Crisis of 1763," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 929-968, December.
  10. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133, March.
  11. 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, August.
  12. Burk, Kathleen, 1989. "Morgan Grenfell 1838-1988: The Biography of a Merchant Bank," OUP Catalogue, Oxford University Press, number 9780198283065, March.
  13. Peter Temin, 1993. "Transmission of the Great Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 87-102, Spring.
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