Austrian Reconstruction and the Collapse of Global Finance, 1921–1931 by Nathan Marcus

Author:Nathan Marcus [Marcus, Nathan]
Language: eng
Format: epub
Tags: History, Modern, 20th Century, Europe, Austria & Hungary, Business & Economics, Economic History, Banks & Banking
ISBN: 9780674983045
Google: ubpTDwAAQBAJ
Publisher: Harvard University Press
Published: 2018-02-05T22:28:15+00:00

The Collapse of the Credit-Anstalt

The CA secretly informed the Austrian government of its difficulties on Friday, 8 May 1931, asking for help.26 Austria’s largest and most famous bank faced a massive loss of sch.140 million (almost $20 million) for 1930, stemming mainly from bad loans and a drop in the price of shares held as assets, wiping out at least four-fifths of the banks’ own capital base. The ongoing recession had reduced cash flows coming from the bank’s own industrial conglomerates and the cost of foreign capital had risen, possibly rendering indebted conglomerates and the bank illiquid. The CA directors blamed the loss of sch.60 million alone on the ill-conceived and hasty merger with the BKA in 1929, which had brought in large participations of moribund companies such as Steyr Automobil, Fanto Oil, and Mauthner Textil. Indeed, the previous three were its largest borrowers and together made up almost half of its ten biggest debtors.27 Given the CA’s size and its importance to the Austrian economy, as a direct and indirect employer and as a provider of credit to industry, the government convened an emergency meeting on Sunday, 10 May 1931, at which it decided to save the bank.

Newspapers in Vienna revealed the crisis on Tuesday and published the official plans to cover the bank’s loss by writing down its capital, mobilizing hidden reserves, and infusing new funds from the government, the ANB, and the bank of S. M. Rothschild. But the measures did not reassure the public, and until the end of the week Austrian and foreign depositors withdrew over sch.300 million (about $42 million) from the CA, 75 percent of which were converted into foreign exchange (see Graph 8.1). Much like the BKA in 1929, the CA obtained liquidity from the ANB against discounts, while the central bank itself faced a large demand for foreign exchange from depositors of all Viennese banks.28 Whereas in 1929 the central bank could put an end to this practice, refusing to lend further to the BKA and forcing its merger with the CA, now there was no larger bank left to bail out the latter. To save the CA from bankruptcy, the ANB had to help it satisfy the withdrawals of its worried customers, but with many of these withdrawals being converted into foreign currency, the ANB itself would face a crisis before long.

The ANB realized that the situation was bound to become critical and asked the BIS in Basel for assistance. In the early 1920s, the BoE had still aimed to coordinate international efforts towards central bank cooperation of monetary policy itself, but at the end of the decade Norman had given up on his idea. The task was instead handed to the BIS, which, although established primarily to assist Germany with finding the foreign currency to pay reparations, was also charged to help strengthen global capital markets and stabilize international exchange rates.29 The bank was owned by twenty-two shareholding central banks, including founding members Belgium, Great Britain, France, Germany, Italy, and Japan, as well as a consortium of U.

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