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The German Twin Crisis of 1931

Published online by Cambridge University Press:  01 September 2004

ISABEL SCHNABEL
Affiliation:
Senior Research Fellow, Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Straße 10, 53113 Bonn, Germany. E-mail: Schnabel@coll.mpg.de

Abstract

Using information on banks' balance sheets, I analyze the causal links between the banking and currency problems in the German crisis of 1931. I find that the crisis had two independent causes: Political shocks triggered a run on the Reichsmark; and the excessive risk-taking by banks that were “too big to fail” led to a run on banks. Due to the high level of foreign debt in the banking system, the run on the currency and the deposit withdrawals reinforced each other in a vicious circle and resulted in a banking panic and the abandonment of the gold standard.

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ARTICLES
Copyright
© 2004 The Economic History Association

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