Banking crisis in Germany and the first step towards recovery

Much has already been written about the 1931 German banking crisis, hence this article will focus on two less frequently addressed aspects. With respect to the question of the direct cause of the crisis and of the run which occurred on 13 July, pertinent developments in the area of gold and foreign currency reserves immediately prior to the crisis, ie in the weeks preceding the collapse, will be scrutinised. Past and current experience teaches us that, from an academic perspective, it is of vital importance not just to investigate the causes of financial market crises but also to analyse the initial steps taken to overcome them. Efforts aimed at restoring public trust in the commercial banks are crucially significant in this regard. While govern-ment guarantees and financial assistance are important, they often do not per se suffice to re-stablish the credibility of the affected players. In this context, there is much to be gained from assuming joint liability, in order to at least enable a resumption of interbank lending between the commercial banks. For this reason, the following article will examine a lesser known episode in German financial history, namely the Transfer Association (Überweisungsverband) of 1931.