Method in the Madness? Banking Crises Between the Wars, an International Comparison

Joost Jonker and Jan Luiten van Zanden

in Banking, Currency, and Finance in Europe Between the Wars

Published in print September 1995 | ISBN: 9780198288039
Published online November 2003 | e-ISBN: 9780191596230 | DOI:
 Method in the Madness? Banking Crises Between the Wars, an International Comparison

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This investigation of the banking crises experienced in 12 European industrial countries and the USA attempts to establish a common pattern and to identify explanations for the timing and occurrence of the crises. The authors find that all crises occurred during years of deflation, but not every deflationary shock led to a run on the banks. In their view, the reasons why banks in some countries were vulnerable to such shocks, and others were not, are closely related to the differing degrees of inflation experienced during and just after the First World War. The conclusion drawn from the study is that the poor quality of the banks’ assets and the reduction in the liquidity associated with the increased commitments to industry were a leading cause of banking crises, but that nevertheless this lending had been a rational policy for the banks in countries that had suffered rapid inflation during and after the war.

Keywords: assets; banking crises; deflation; Europe; First World War; industry; lending; liquidity; rationality; USA

Chapter.  7247 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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