In June 1931, as the German financial system teetered on the brink, the Reichsbank received a $100 million loan -- equivalent to more than $5 billion today -- from the central banks of France, the U.K. and U.S. The sum turned out to be insufficient to meet soaring German demand for foreign exchange. A bigger loan was blocked by France, which was concerned about plans for a customs union between Germany and Austria.
Germany’s Danatbank collapsed after one of its biggest borrowers failed. That sent capital fleeing abroad, depleting reserves, according to a 2009 paper by Martin Pontzen of the Bundesbank. By September, German banks, including Commerzbank AG and Deutsche Bank AG, were under state control.
A bank holiday and capital controls dragged in London’s merchant banks, which had guaranteed loans to German borrowers, according to Olivier Accominotti, a lecturer in economic history at the London School of Economics. A run on the pound cost Britain about 20 percent of its reserves in two weeks and ended with the nation abandoning the gold standard.
The U.S. was forced to raise interest rates to defend its gold reserves. In 1933, President Franklin D. Roosevelt imposed a bank holiday and forbade citizens from hoarding gold.
“What started as a liquidity crisis became a solvency issue,” said Accominotti. “There was a major risk of a systemic crisis.”