Micro-Evidence From a System-Wide Financial Meltdown: The German Crisis of 1931
43 Pages Posted: 15 Aug 2019 Last revised: 1 Oct 2019
Date Written: August 12, 2019
In this paper, we use hand-collected monthly bank balance sheet data during a system-wide run on the German banking system in 1931 to study the determinants of bank stability. We derive three key insights. First, demand deposits are — despite the absence of deposit insurance — largely stable and the run is centered around the collapse of interbank and wholesale funding. Second, while aggregate deposits are contracting, deposits are also partially reshuffled within the system with some banks receiving deposit inflows during the run. Third, we show that both, better capitalized and more liquid banks, are more stable and less likely to be subject to deposit outflows during the run. However, only higher bank capital is associated with higher credit provision in the crisis.
Keywords: bank runs, financial crisis, banking panics, banking regulation
JEL Classification: G01, G21, N20, N24
Suggested Citation: Suggested Citation