The Credit-Anstalt Crisis of 1931.

• Author: Kindelberger, Charles P.

This book is a revision of a doctoral dissertation at the University of South Carolina under the supervision of Professor Michael Bordo, by an economist at the Austrian National Bank who also teaches at Webster University in Vienna. Its analysis of the financial crisis of May 1931 which deepened and spread the international bank run that ricocheted from Austria to Germany, Britain, Japan, the United States and ultimately the gold bloc provides a most welcome illumination of the originating events and the policies followed in trying to handle them. The author well understands the ambiguities in distinguishing between solvency and liquidity, proximate and ultimate causes, the insured and the insurer, domestic and foreign crisis, although he may not be sufficiently guarded in recognizing remaining ambiguity when he states that certain conclusions emerge clearly.

Early chapters lay out the lugubrious background of Austrian economics and finance in the immediate postwar period: the amputation of the Treaty of Trianon leaving the country an economic basket-case; post-war inflation; the League of Nations stabilization with its 1922 Protocol that required League approval for Austrian borrowing and any departure from gold; Austrian bank and speculator participation in the 1924 attack on the French franc that produced thirty bank failures in Austria when the squeeze engineered in Paris caught out the bears and their lenders, and weakened the remaining thirty-six; the failure of the Bodenkreditanstalt in 1929 and its absorption, engineered by the government, by the Credit-Anstalt, without adequate provision for its bad loans; inadequate bank supervision by the national bank and the government; and the practice, in Vienna as in Germany, of banks supporting their stock price, as the depression deepened, running down both reserves and the deposit/capital ratio. Too little attention, perhaps, is paid to the fall in world prices that began after the New York stock-market crash in October 1929, with its impact on industry profits, export values, and the necessity of Austrian banks to lend to their industrial associates to keep them afloat. Bad loans mounted sharply but the mass of depositors believed that hidden reserves would suffice to offset any possible impairment of capital. The publication of the Credit-Anstalt's balance sheet for the end of 1930 on May 11, 1931 was a shock for which markets and authorities at home and abroad were unprepared: a loss...