When the Music Stopped: Transatlantic Contagion During the Financial Crisis of 1931

In 1931, a financial crisis began in Austria, struck numerous European nations, forced Britain to abandon the gold standard, and spread across the Atlantic. This article describes how banks in New York City, the central money market of the United States, reacted to events in Europe. An array of data sources - including memos detailing private conversations between leading bankers the governors of the New York Federal Reserve, articles written by prominent commentators, and financial data drawn from the balance sheets of commercial banks - tell a consistent tale. Banks in New York anticipated events in Europe, prepared for them by accumulating substantial reserves, and during the crisis, continued business as usual. Leading international bankers deliberately and collectively decided on the business-as-usual policy in order to minimize the impact of the panic in the United States and Europe.