The German Twin Crisis of 1931

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  • 1 January 2002
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      • Published in RePEc
Abstract
Using information on banks' balance sheets, we analyze the causal links between the banking and the currency problems in the German financial crisis of 1931. We find that the currency problems were caused by political shocks, while the problems in the banking sector were the result of excessive risk-taking by banks that were 'too big to fail'. Due to the high levels of foreign debt in the banking system, the run on the currency and the deposit withdrawals reinforced each other in a vicious circle and resulted in a banking panic and the abandonment of the gold standard.
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