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The Real Effects of Bank Runs. Evidence from the French Great Depression (1930-1931)

Eric Monnet, , and Stefano Ungaro

No 16054, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate the causal impact of bank runs by exploiting a key feature of the French Great Depression (1930-1931) that created exogenous geographical variations in the withdrawals of bank deposits. Unregulated commercial banks coexisted with government-backed saving institutions (Caisses d’épargne). During the crisis, depositors who had an account in Caisses d’épargne were more likely to withdraw from banks. Pre-crisis density of Caisses d’épargne accounts was unrelated to economic and bank characteristics. Using this variable as an instrument, we find that a 1% decrease in bank branches reduced aggregate income by 1%. Our identification highlights how a shift of deposits towards safer institutions can affect financial fragility. It holds lessons for current financial regulation and the design of central bank digital currency (CBDC).

Keywords: Bank runs; Flight-to-safety; Banking panics; Great depression (search for similar items in EconPapers)
JEL-codes: E44 E51 G01 G21 N14 N24 (search for similar items in EconPapers)
Date: 2021-04
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