DP13287 Flight-to-safety and the Credit Crunch: A new history of the banking crisis in France during the Great Depression

Author(s): Patrice Baubeau, Eric Monnet, Angelo Riva, Stefano Ungaro
Publication Date: October 2018
Keyword(s): banking panics, flight-to-safety, France, gold standard, Great Depression, Savings Banks
JEL(s): E44, E51, E58, G01, G21, G23, G33, N14, N24
Programme Areas: Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13287

Despite France's importance in the interwar world economy, the scale and consequences of the French banking crises of 1930-1931 were never assessed quantitatively due to lack of data in the absence of banking regulation. Using a new dataset of individual balance sheets from more than 400 banks, we show that the crisis was more severe and occurred earlier than previously thought, and it was very asymmetric, without affecting main commercial banks. The primary transmission channel was a flight-to-safety of deposits from banks to savings institutions and the central bank, leading to a major, persistent disruption in business lending. In line with the gold standard mentality, cash deposited with savings institutions and the central bank was used to decrease marketable public debt and increase gold reserves, rather than pursue countercyclical policies. Despite massive capital inflows, France suffered from a severe, persistent credit crunch.