2 - Diary of the crisis

Summary

Telling the story of a crisis such as this seems worth while … because it offers sheer morbid fascination.

–L. B. Yeager, 1976

On May 8, 1931, the Austrian Credit-Anstalt (Oesterreichische Credit-Anstalt für Handel and Gewerbe) informed the Austrian government and the Austrian National Bank (ANB) that its 1930 balance sheet had revealed a loss of 140 million schillings, amounting to roughly 7.5 percent of its total balance sheet or to about 85 percent of its equity – a shocking announcement even for the Austrian authorities, who were used to crises. A weekend of continuous secret top-level meetings followed. In order to avoid any publicity or panic, even the locations of the meetings were frequently changed.

Bank failures were nothing unusual and new for the Austrian authorities. The 1920s had already witnessed a series of such events going back to the collapse of the stock exchange boom and the bear speculation against the French franc in 1924. This started a wave of bank collapses, eliminating most of the financial institutions that had been established during the stock exchange boom following the end of the hyperinflation and the stabilization of the Austrian currency.

In May 1924 the Allgemeine Depositenbank, a midsized institution that had participated very heavily in the speculation against the French currency, had to close its doors. Rumors about that institution's solvency problems had been published in Prague, igniting large withdrawals.