Hostname: page-component-78c5997874-t5tsf Total loading time: 0 Render date: 2024-11-10T11:09:45.820Z Has data issue: false hasContentIssue false
  • English
  • Français

The international propagation of the financial crisis of 2008 and a comparison with 19311

Published online by Cambridge University Press:  06 July 2012

William A. Allen  and
Richhild Moessner
William A. Allen
Affiliation:
Cass Business School, bill@allen-economics.com
Richhild Moessner
Affiliation:
Bank for International Settlements and Cass Business School, richhild.moessner@bis.org
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the international propagation of the financial crisis of 2008, and compare it with that of the crisis of 1931. Both crises featured a flight to liquidity and safety. We argue that the collateral squeeze in the United States, which became intense after the failure of Lehman Brothers, was an important propagator in 2008; in 1931 the acceptances granted by London banks to central European borrowers propagated the crisis to the UK. In both crises, central banks' reserve management actions contributed to the liquidity crisis. And in both crises, the behaviour of creditors towards debtors, and the valuation of assets by creditors, were very important. However, there was a key difference between the two crises in the range and nature of assets that were regarded as liquid and safe: central banks in 2008, with no gold standard constraint, could liquefy illiquid assets on a much greater scale.

Keywords

financial crisisliquidityinternational monetary systemGreat Depression

JEL classification

N1: Macroeconomics and Monetary Economics • Industrial Structure • Growth • Fluctuations F31: Foreign Exchange E58: Central Banks and Their Policies
Type
The past mirror: notes, surveys, debates
Information
Financial History Review , Volume 19 , Issue 2 , August 2012 , pp. 123 - 147
Copyright
Copyright © European Association for Banking and Financial History e.V. 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Accominotti, O. (2009). London merchant banks, the central European panic, and the sterling crisis of 1931. Available at http://web-docs.stern.nyu.edu/old_web/economics/docs/FinHist/Accominotti_SterlingCrisis.pdf.Google Scholar
Accominotti, O. (2011). Asymmetric propagation of financial crises during the Great Depression. Available at www2.lse.ac.uk/economicHistory/whosWho/profiles/oaccomminotti@lseacuk.aspx.Google Scholar
Adrian, T. and Shin, H. S. (2009). The shadow banking system: implications for regulation. Banque de France Financial Stability Review no. 13, September, pp. 1–10.Google Scholar
Adrian, T. and Shin, H. S. (2010). Liquidity and leverage. Federal Reserve Bank of New York Staff Report no. 328. Available at www.newyorkfed.org/research/staff_reports/sr328.pdf.CrossRefGoogle Scholar
Ahamed, L. (2009). Lords of Finance. London: Windmill Books.Google Scholar
Aiyar, S. (2011). How did the crisis in international funding markets affect bank lending? Balance sheet evidence from the United Kingdom. Bank of England Working Paper no. 424.CrossRefGoogle Scholar
Allen, W. and Moessner, R. (2010). Central bank co-operation and international liquidity in the financial crisis of 2008-9. Bank for International Settlements Working Paper no. 310.Google Scholar
Allen, W. and Moessner, R. (2011). The collateral squeeze of 2008. Central Banking, 21(3), pp. 84–9.Google Scholar
Allen, W. and Wood, G. (2006). Defining and achieving financial stability. Journal of Financial Stability, 2, pp. 152–72.CrossRefGoogle Scholar
Baba, N., McCauley, R. and Ramaswamy, S. (2009). US dollar money market funds and non-US banks. BIS Quarterly Review, March, pp. 65–81.Google Scholar
Bagehot, W. (1892). Lombard Street: A Description of the Money Market, 10th edition. London: Kegan Paul, French, Trübner & Co.Google Scholar
BANK FOR INTERNATIONAL SETTLEMENTS (1933). Third Annual Report.Google Scholar
BANK OF JAPAN (2009). Financial markets report. Reports and Research Papers, March. Available at www.boj.or.jp/en/type/ronbun/mkr/data/mkr0903.pdf.Google Scholar
Bernanke, B. and James, H. (1991/2000). The gold standard, deflation and financial crisis in the Great Depression: an international comparison. Reprinted in B. Bernanke, Essays on the Great Depression. Princeton: Princeton University Press, 2000.Google Scholar
Billings, M. and Capie, F. (2010). Financial crisis, contagion and the British financial system between the wars. Unpublished MS.Google Scholar
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (1976). Banking and Monetary Statistics.Google Scholar
Brown, W. A. JR (1940). The International Gold Standard Reinterpreted 1914–1934. New York: National Bureau of Economic Research.Google Scholar
Cecchetti, S., Fender, I. and McGuire, P. (2010). Toward a global risk map. BIS Working Paper no. 309.CrossRefGoogle Scholar
COMMITTEE ON FINANCE AND INDUSTRY (1931). Report. London: His Majesty's Stationery Office (Macmillan report).Google Scholar
Cetorelli, N. and Goldberg, L. (2009). Banking globalization and monetary transmission. Federal Reserve Bank of New York Staff Report no. 333. Available at http://newyorkfed.org/research/staff_reports/sr333.pdf.Google Scholar
COMMITTEE ON THE GLOBAL FINANCIAL SYSTEM (2010a). The functioning and resilience of cross-border funding markets. CGFS Papers no. 37.Google Scholar
COMMITTEE ON THE GLOBAL FINANCIAL SYSTEM (2010b). Funding patterns and liquidity management of internationally active banks. CGFS Papers no. 39.Google Scholar
Copeland, A., Martin, A. and Walker, M. (2010). The tri-party repo market before the 2010 reforms. Federal Reserve Bank of New York Staff Report no. 477. Available at http://data.newyorkfed.org/research/staff_reports/sr477.pdf.Google Scholar
Cottrell, P. L. (1995). The Bank in its international setting. In Roberts, R. and Kynaston, D. (eds.), The Bank of England: Money, Power and Influence, 1694–1994. Oxford: Oxford University Press.Google Scholar
Bundesbank, Deutsche (1976). Deutsches Geld- und Bankwesen in Zahlen 1876–1975. Frankfurt am Main: Fritz Knapp.Google Scholar
Diaper, S. (1986). Merchant banking in the inter-war period: the case of Kleinwort, Sons & Co. Business History, 28(4), pp. 55–76.CrossRefGoogle Scholar
Domanski, D. and Turner, P. (2011). The great liquidity freeze: what does it mean for international banking? Asian Development Bank Institute Working Paper Series no. 291.Google Scholar
Eichengreen, B. (1995). Golden Fetters – the Gold Standard and the Great Depression 1919–1939. Oxford: Oxford University Press.Google Scholar
Eichengreen, B. (2010). The Great Recession and the Great Depression: reflections and lessons. Central Bank of Chile Working Papers no. 593.Google Scholar
Eichengreen, B. and Flandreau, M. (2008). The rise and fall of the dollar, or when did the dollar replace sterling as the leading international currency. NBER Working Paper no. 14154.CrossRefGoogle Scholar
Fender, I. and Gyntelberg, J. (2008). Overview: global financial crisis spurs unprecedented policy action. BIS Quarterly Review, December, pp. 1–24.Google Scholar
Financial Crisis Inquiry Commission (FCIC, 2011). Report. US Government Printing Office. Available at http://fcic.law.stanford.edu/report.Google Scholar
Forbes, N. (1987). London banks, the German standstill agreements, and ‘economic appeasement’ in the 1930s. Economic History Review, 2nd series, 40(4), pp. 571–87.Google Scholar
Friedman, M. and Schwartz, A. (1963). A Monetary History of the United States 1867–1960. Princeton: Princeton University Press for the National Bureau of Economic Research.Google Scholar
Gorton, G. (2010). Slapped by the Invisible Hand: The Panic of 2007. Oxford: Oxford University Press.Google Scholar
Gorton, G. and Metrick, A. (2009). Securitized banking and the run on repo. NBER Working Paper no. 15223.CrossRefGoogle Scholar
INTERNATIONAL MONETARY FUND (2010). Global Financial Stability Report. October.Google Scholar
James, H. (2001). The End of Globalization. Cambridge, MA: Harvard University Press.Google Scholar
Maddison, A. (2010). Statistics on world population, GDP and per capita GDP, 1–2008 AD. Available at www.ggdc.net/maddison/content.shtml.Google Scholar
McCauley, R. N. and Rigaudy, J.-F. (2011). Managing foreign exchange reserves in the crisis and after. In Bank for International Settlements, Portfolio and Risk Management for Central Banks and Sovereign Wealth Funds, BIS Papers no. 48, pp. 19–47.Google Scholar
Moessner, R. and Allen, W. (2011). Banking crises and the international monetary system in the Great Depression and now. Financial History Review, 18(1), pp. 1–20.CrossRefGoogle Scholar
Mouré, K. (1991). Managing the Franc Poincaré: Economic Understanding and Political Constraint in French Monetary Policy 1928–1936. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Pihlmann, J. and Van der Hoorn, H. (2010). Procyclicality in central bank reserve management: evidence from the crisis. IMF Working Paper WP 10/150.CrossRefGoogle Scholar
Pozsar, Z., Adrian, T.Ashcraft, A. and Boesky, H. (2010). Shadow banking. Federal Reserve Bank of New York Staff Report no. 458. Available at www.newyorkfed.org/research/staff_reports/sr458.html.CrossRefGoogle Scholar
Ritschl, A. (2009). War 2008 das neue 1931? Aus Politik und Zeitgeschichte, 20/2009. Available at www.bpb.de/files/PQYS6J.pdf.Google Scholar
Roberts, R. (1992). Schroders: Bankers and Merchants. Basingstoke: Macmillan.CrossRefGoogle Scholar
Roberts, R. (1995). The Bank and the City. In Roberts, R. and Kynaston, D. (eds.), The Bank of England: Money, Power and Influence, 1694–1994. Oxford: Oxford University Press.CrossRefGoogle Scholar
ROYAL INSTITUTE OF INTERNATIONAL AFFAIRS (1937). The Problem of International Investment. Oxford: Oxford University Press.Google Scholar
Sayers, R. S. (1976). The Bank of England 1891–1944, 2 vols. Cambridge: Cambridge University Press.Google Scholar
Sheppard, D. K. (1971). The Growth and Role of UK Financial Institutions 1880–1962. London: Methuen.Google Scholar
Singh, M. and Aitken, J. (2009). Deleveraging after Lehman – evidence from reduced rehypothecation. IMF Working Paper WP/09/42.Google Scholar
Truptil, R. J. (1936). British Banks and the London Money Market. London: Jonathan Cape.Google Scholar
Williams, D. (1963). The 1931 crisis. Yorkshire Bulletin of Economic and Social Research, 15(2), pp. 513–28.CrossRefGoogle Scholar