Micro-evidence from a System-wide Financial Meltdown: The German Crisis of 1931

Kristian Blickle, Markus Brunnermeier and Stephan Luck

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: This paper studies a major financial panic, the run on the German banking system in 1931, to distinguish between banking theories that view depositors as demanders of liquidity and those that view them as providers of discipline. Our empirical approach exploits the fact that the German Crisis of 1931 was system-wide with cross-sectional variation in deposit flows as well as bank distress and took place in absence of a deposit insurance scheme. We find that interbank deposit flows predict subsequent bank distress early on. In contrast, wholesale depositors are more likely to withdraw from distressed banks at later stages of the run and only after the interbank market has started to collapse. Retail deposits are—despite the absence of deposit insurance—largely stable. Our findings emphasize the heterogeneity in depositor roles, with discipline being best provided through the interbank market.

Keywords: Germany (search for similar items in EconPapers)
JEL-codes: G01 G21 N20 N24 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-fdg, nep-his, nep-ias and nep-isf
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:275

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