Who Can Tell Which Banks Will Fail?

This article analyzes the 1931 run on the German banking system to determine whether depositors could anticipate which banks would fail during a major financial crisis. Using newly digitized monthly balance-sheet data for over 120 banks, the study finds that while total deposits declined by about 20%, retail and nonfinancial wholesale depositors did not differentiate between failing and surviving banks in their withdrawals. In contrast, interbank deposits fell sharply—by around 70%—at failing banks but remained stable or grew at surviving banks, indicating that banks were better informed about the financial health of their peers. The interbank market continued to provide liquidity to solvent banks despite severe distress, and interbank deposit flows significantly improved the prediction of bank failures, unlike regular deposit flows. These findings suggest that banks possess superior information during crises, enabling them to discipline weaker banks and maintain interbank market functioning, with implications for understanding depositor behavior, interbank market resilience, and policy design in banking crises.