A banking crisis isn’t just bad for business, it can also poison politics

·1 min read
<span>Photograph: ASSOCIATED PRESS</span>

The failure of Germany’s second biggest bank in 1931 was a factor in the rise of the Nazis

Financial crises are a really bad idea. We learned that in the UK with the 2008 banking crisis. It doubled our national debt and was followed by a decade of lost earnings growth. But banks going under contributes to grim politics, too.

That’s the lesson from some economic and political history contained in new Bank for International Settlements’ research. It examines Germany’s 1931 banking crisis and the link to the rise of the Nazis. In July that year, the country’s second largest bank – Danatbank – failed, triggering a bank run, financial crisis and big income falls.

Areas whose firms were most exposed to Danatbank saw bigger economic declines. But those cities also saw larger increases in the Nazi vote share in 1932. While other banks went bust, it was exposure to Danatbank in particular that contributed to rising Nazi support, with the bank’s Jewish manager, Jakob Goldschmidt, a target for Nazi propaganda.

Pre-existing attitudes also mattered. Places with a history of antisemitism saw stronger radicalisation after this shock and the impact persisted after the Nazis came to power. Areas harder hit by the banking crisis had more pogroms and deportations during 1930s Germany.

I suspect you already knew this, after 2008, but avoiding banking crashes is a really good idea. So is understanding how economic outcomes and social attitudes sometimes come together with toxic results.

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