Flight‐to‐safety and the credit crunch: a new history of the banking crises in France during the Great Depression

Patrice Baubeau (), Eric Monnet, Angelo Riva () and Stefano Ungaro
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Patrice Baubeau: IDHES - Institutions et Dynamiques Historiques de l'Économie et de la Société - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay
Angelo Riva: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EBS Paris - European Business School Paris

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Abstract: Despite France's importance in the interwar world economy, the scale of the French banking crises of 1930–1 and their consequences have never been fully assessed quantitatively. The lack of banking regulation severely limited the availability of balance sheet data. Using a new dataset of individual balance sheets from more than 300 banks, this article shows that the crises were much more severe than previously thought, although they did not affect the main commercial banks. By reconstructing financial flows, this study shows that the fall in bank credit was mostly driven by a flight‐to‐safety by deposits, from banks to savings institutions and the central bank. The decrease in bank deposits due to bank runs was offset by an increase in deposits with savings institutions, with the central bank, and in cash hoarding, whereas the decrease in bank credit was not offset by an increase in loans from non‐bank financial institutions. In line with the gold standard mentality, cash deposited with savings institutions and the central bank was used to decrease marketable public debt and increase gold reserves, rather than pursuing countercyclical policies. Despite massive capital inflows and rising aggregate money supply, France suffered from a severe, persistent credit crunch.

Date: 2021-02
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Published in The Economic History Review, 2021, 74 (1), pp.223-250. ⟨10.1111/ehr.12972⟩

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Related works:
Journal Article: Flight‐to‐safety and the credit crunch: a new history of the banking crises in France during the Great Depression (2021)
Working Paper: Flight‐to‐safety and the credit crunch: a new history of the banking crises in France during the Great Depression (2021)
Working Paper: Flight-to-safety and the Credit Crunch: A new history of the banking crisis in France during the Great Depression (2018)
Working Paper: Flight-to-safety and the Credit Crunch: A new history of the banking crisis in France during the Great Depression (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02973038

DOI: 10.1111/ehr.12972

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