Working Paper: CEPR ID: DP13287
Authors: Patrice Baubeau; Eric Monnet; Angelo Riva; Stefano Ungaro
Abstract: Despite France's importance in the interwar world economy, the scale and consequences of the French banking crises of 1930–1931 were never assessed quantitatively due to lack of data in the absence of banking regulation. Using a new dataset of individual balance sheets from more than 400 banks, we show that the crisis was more severe and occurred earlier than previously thought, and it was very asymmetric, without affecting main commercial banks. The primary transmission channel was a flight-to-safety of deposits from banks to savings institutions and the central bank, leading to a major, persistent disruption in business lending. 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 pursue countercyclical policies. Despite massive capital inflows, France suffered from a severe, persistent credit crunch.
Keywords: Great Depression; Flight to Safety; France; Banking Panics; Savings Banks; Gold Standard
JEL Codes: N14; N24; G01; G21; G23; G33; E44; E51; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| flight to safety of deposits from banks to savings institutions and the central bank (G28) | disruption in business lending (G21) |
| banking crisis (F65) | decline in total deposits and credit (G21) |
| banking crisis (F65) | ratio of loans to non-financial corporations (G32) |
| flight of deposits to safer institutions (G28) | persistent credit crunch (E51) |
| adherence to the gold standard and deflationary policies (F33) | prevented countercyclical measures (E60) |