Crowds gathering before a bank – never a good sign or, in fact, a harbinger of doom. On the (nomen is omen!) 13th of July 1931 it wasn’t any different: on that day Germany’s second most powerful bank, born out of the 1922 merger of Darmstädter Bank and Nationalbank für Deutschland and better known as DANAT-Bank, was forced to throw in the towel, shutting down its tills and doors.
Its collapse became a nearly apocryphal story in the most dramatic chapter in what came to be known as Deutsche Bankenkrise (German Banking Crisis).
It would be far too much of a challenge to try to go into all the details of the crisis itself or, come to that, offer an in-depth analysis of its causes in what is a short post. Suffice to say that things began to go quite pear-shaped for German economy the moment its post-WWI fate had been sealed and war reparations were due. After the hyperinflation of the 1923 German banking system began to gain momentum again, however, at a high price: the economy was kept afloat mostly thanks to foreign (read: US) credits the country had to obtain. The spectre of credit-bubble burst hang in the air like volcano dust.
On the surface of it, DANAT-Bank, established in 1922, seemed to be a strong player. However, not only the most far-sighted among the observers could have predicted its downfall. These unwelcome opinions, though, although present, were – as it is nearly always the case (see: German Wirecard Scandal) – regularly ignored or even willingly silenced. Even the main seat of the DANAT-Bank, the building Am Schinkelplatz 1-4 as well as the massive edifice in Behrenstraße 68-70, seemed to symbolise Power, Control and Stability. It seemed inconceivable that such a giant could be toppled.
Yet it happened. The wrecking ball was set in motion by the collapse of the New York stock exchange in 1929 and the financial crisis that followed. Suddenly the US credits that Germany so relied on turned into a kind of very-short-term liabilities: the lender capped the cash-flow and asked for refunds. Also, the payments had to be made in US dollars (the Reichsmark was considered worthless) thus depleting German Reichsbank‘s currency stock. Germany was being literally bled.
That in itself was a massive nail in DANAT’s coffin but what really brought about its eventual fall was the credit their own bank gave to one of Germany’s largest textile-industry players: Nordwolle, a wool and worsted spinnery in the German state of Niedersachsen (Lower Saxony). After Nordwolle‘s management admitted they had gone bankrupt and were unable to pay back what they owed – an event which went down in history as Lahusen Affair (after Carl Lahusen, the company’s owner), DANAT-Bank was forced to come clean as well. And hell broke loose.
The news of the bank’s collapse spread – as they always do – fast and for many it became clear that should the colossus’s fall, it would be just one of the domino stones about to tumble. Despite (or perhaps also because of) the government’s announcement that German banks can count their 100% backing, desperate Berliners rushed to their banks in the hope of withdrawing the savings on time.
But by then, July 13th 1931, bank-gates had already been firmly shut. This dramatic moment, the tragedy of small people trying to get back the guarantee of the security of their and their family’s lives, was very convincingly presented in the tremendously popular German TV series Babylon Berlin based on Volker Kutscher’s crime novels based in Berlin in the days of the Weimar Republic.
To calm the situation down as well as help experts overcome the initial shock and panic attacks (necessary to be able to whip up a life-saving plan), German Chancellor Heinrich Brüning ordered stock exchange closed and introduced a two-day long bank holiday. Which for millions and millions of customers meant being shoved into financial limbo. Only too well did they remember the hell of hyperinflation they were forced to live after the end of the First World War and its nadir in 1923.
In the end neither Brüning nor the eventually offered help from the US Congress (another sad example of History’s “too little, too late”) could prevent the worst: Germany’s economy got sucked into an economic void with the number of unemployed skyrocketing from 1.9 million in 1929 to nearly six million by 1932. The dramatic situation and general sense of helplessness mixed with growing anger towards “the haves” were quickly used by political parties with great governmental ambitions. The main among them was the NSDAP – the Nazi Party.