The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931

Schnabel, Isabel

doi:10.2139/ssrn.700561

The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931

MPI Collective Goods Preprint No. 2005/5

39 Pages Posted: 7 Apr 2005

See all articles by Isabel Schnabel

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Date Written: March 2005

Abstract

Using monthly balance-sheet data of all major German credit banks, we analyze deposit withdrawals and bank failures in the German banking and currency crisis of 1931. We find that deposit 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.

Keywords: twin crises, liquidity, implicit guarantees, too big to fail

JEL Classification: G21, E5, N24, C34

Suggested Citation: Suggested Citation

Schnabel, Isabel, The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931 (March 2005). MPI Collective Goods Preprint No. 2005/5. Available at SSRN: https://ssrn.com/abstract=700561 or http://dx.doi.org/10.2139/ssrn.700561