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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.

Suggested Citation

  • Isabel Schnabel, 2005. "The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2005_5, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2005_05
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    References listed on IDEAS

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    Cited by:

    1. Schnabel, Isabel & Körner, Tobias, 2012. "Abolishing Public Guarantees in the Absence of Market Discipline," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 65401, Verein für Socialpolitik / German Economic Association.
    2. Bindseil, Ulrich & Winkler, Adalbert, 2012. "Dual liquidity crises under alternative monetary frameworks: a financial accounts perspective," Working Paper Series 1478, European Central Bank.
    3. Admati, Anat R. & DeMarzo, Peter M. & Hellwig, Martin F. & Pfleiderer, Paul, 2010. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive," Research Papers 2065, Stanford University, Graduate School of Business.
    4. Reint Gropp & Hendrik Hakenes & Isabel Schnabel, 2011. "Competition, Risk-shifting, and Public Bail-out Policies," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2084-2120.
    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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    More about this item

    Keywords

    Twin crises; liquidity; implicit guarantees; “too big to fail”;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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