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

  • William A. Allen (a1) and Richhild Moessner (a2)
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.

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References
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W. Allen and G. Wood (2006). Defining and achieving financial stability. Journal of Financial Stability, 2, pp. 152–72.

S. Diaper (1986). Merchant banking in the inter-war period: the case of Kleinwort, Sons & Co. Business History, 28(4), pp. 5576.

N. Forbes (1987). London banks, the German standstill agreements, and ‘economic appeasement’ in the 1930s. Economic History Review, 2nd series, 40(4), pp. 571–87.

R. Roberts (1992). Schroders: Bankers and Merchants. Basingstoke: Macmillan.

R. Roberts (1995). The Bank and the City. In R. Roberts and D. Kynaston (eds.), The Bank of England: Money, Power and Influence, 1694–1994. Oxford: Oxford University Press.

D. Williams (1963). The 1931 crisis. Yorkshire Bulletin of Economic and Social Research, 15(2), pp. 513–28.

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Financial History Review
  • ISSN: 0968-5650
  • EISSN: 1474-0052
  • URL: /core/journals/financial-history-review
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