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

  • Isabel Schnabel

    ()

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

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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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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  1. 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.
  2. 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.).
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
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