Working Paper: NBER ID: w17437
Authors: Gary Richardson; Patrick Van Horn
Abstract: In the summer of 1931, a financial crisis began in Austria, spread to Germany, forced Britain to abandon the gold standard, crossed the Atlantic, and afflicted financial institutions in the United States. This article describes how banks in New York City, the central money market of the United States, reacted to this trans-Atlantic trauma. New York’s money-center banks anticipated the onset of a financial crisis, prepared for it by accumulating substantial reserves, and during the European crisis, continued business as usual. New York’s leading bankers deliberately and collectively decided on the business-as-usual policy in order to minimize the impact of the panic in the United States. New York banks’ behavior changed only after the Federal Reserve raised discount rates to stem gold outflows in the fall of 1931.
Keywords: financial crisis; money center banks; transatlantic contagion; balance sheet analysis
JEL Codes: E02; E42; E44; G21; N1; N12; N14; N2; N22; N24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| European crisis (G01) | balance sheets of banks with foreign exposure (F65) |
| European crisis (G01) | balance sheets of banks without foreign exposure (F65) |
| Federal Reserve's discount rate increases (E52) | behavior of New York banks (G21) |
| foreign exposure (F31) | declines in key balance sheet components (G32) |
| foreign exposure (F31) | performance of banks during the crisis (G21) |