Working Paper: NBER ID: w12983
Authors: Gary Richardson; Patrick Van Horn
Abstract: A banking crisis began in Austria in May 1931 and intensified in July, when runs struck banks throughout Germany. In September, the crisis compelled Britain to quit the gold standard. Newly discovered data shows that failure rates rose for banks in New York City, at the center of the United States money market, in July and August 1931, before Britain abandoned the gold standard and before financial outflows compelled the Federal Reserve to raise interest rates. Banks in New York City had large exposures to foreign deposits and German debt. This paper tests to see whether the foreign exposure of money center banks linked the financial crises on the two sides of the Atlantic.
Keywords: banking crisis; Great Depression; foreign exposure; New York banks; Germany
JEL Codes: F02; F33; F34; N1; N12; N14; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Britain's abandonment of the gold standard (F33) | Financial distress in New York (G33) |
| German banking crisis (F65) | Increase in bank failures in New York City (F65) |
| Increase in bank failures in New York City (F65) | Financial distress in New York (G33) |
| Foreign exposure (F31) | Lower failure rates in banks (G21) |
| Domestic factors (F52) | Bank distress (G28) |
| German banking crisis (F65) | Financial distress in New York (G33) |