- | Thursday, November 12
- 12:15 PM
- Global Banking and the International Transmission of the 1931 Financial Crisis
Global Banking and the International Transmission of the 1931 Financial Crisis
How did the 1931 financial crisis propagate internationally? This paper explores the effect of the Central European crisis of the summer of 1931 on US and British banks. Using archival bank-level data, I document US and British banks’ asset side exposure to Germany, Austria and Hungary in 1931. The freezing of Central European assets left few US banks insolvent but endangered many British financial institutions. In Britain, Central European frozen credits were mostly held by small and poorly diversified banks with little capital to absorb losses in the crisis region. In the United States, Central European credits were mostly held by large and diversified banks which were better able to cushion the shock of the German crisis. Differences between the US and the British banking structures explain why the German/Central European crisis propagated to London but not New York in the summer of 1931.