Abstract: In May-July 1931, a series of financial panics shook central Europe before spreading to the rest of the world. This paper explores the role of cross-border banking linkages in propagating the central European crisis to Britain and the United States. Using archival bank-level data, I document US and British banks’ exposure to central European frozen credits in 1931. Central European lending was mostly done by large and diversified commercial banks in the United States and by small and geographically specialized merchant banks/acceptance houses in Britain. Differences in the organization of international bank lending explain why the central European crisis disturbed few US banks but endangered many British financial institutions.

Abstract: Since banking regulation was introduced in France only in 1941, little is known about the balance sheets of French banks before that date. We do not have statistical information on the difficulties of banks in France during the Great Depression of the 1930s, let alone reliable information on the causes of bankruptcy and interbank contagion. This project aims to gather many historical sources to significantly improve our knowledge of the French banking system during the interwar period and, more generally to understand the reasons for the banking crises and the historical specificity of the French banking system. Our study was made possible by the discovery of exceptional archival sources. The Crédit Lyonnais – one of the four major banks – collected information for around 450 banks from 1910 until 1939 and, most important, standardized balance sheets to make them comparable. We present the sources and discuss why the Crédit Lyonnais constructed such a database. The accounting choices made by the Crédit Lyonnais to standardize banks’ balance sheets are telling to understand what the definition of a bank was before banking regulation was implemented. Two main conclusions stand out. First, we confirm recent analyses that – contrary to the conventional wisdom – had claimed that France experienced a massive series of banking failures. About one third of banks failed between 1929 and 1936. This is in sharp contrast with England, for example, where only some important merchant banks suffered (Billings and Capie, 2011). Second, we find that the banking crisis in France started just after the October 1929 stock market crash and was already very severe before the 1931 international shocks (Kreditanstalt failure and then Sterling devaluation). These two conclusions point out that the chronology of the French banking crisis differs from the chronology of other countries on one hand, and – most surprisingly – from the chronology of French economic cycle on the other hand (it is well-known that the Great Depression started later in France than abroad). These observations also go against the argument that attributes the difficulties of the French banking system to the Gold standard. The French 1929-1931 banking crisis was mostly due to domestic weaknesses and did not worsen in 1932-1936, while France was staying in the gold standard.

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.

Banking crises in the wake of the Great Depression did not, of course, affect only large and highly developed countries. Small and less developed countries also suffered, mainly as a result of the impact of events in the core of the world economy. This paper will take the case of a small and medium developed European economy: Portugal. Section 1 will describe the institutional framework of the Portuguese banking system at the time. Section 2 will present the short-term background of the Portuguese situation at the time. Section 3 will present the general features of the evolution of the Portuguese banking system during that critical period. Section 4 will study the (comparatively moderate) troubles of one of the colonial issuing banks, Bank of Angola. Section 5 will study the (comparatively very deep) troubles of the other colonial issuing bank, National Overseas Bank. As a synthesis, it may be said that the action of the Bank of Portugal as a lender of last resort was enough to overcome the rather moderate problems of most Portuguese banks, although a few small bank were left to collapse, and a bail out was necessary to save the National Overseas Bank, which was the main concern of the Portuguese government.