Chapter 14 Berlin Banking Panic

Ironically, Germany's independent economic development policy had to bear the consequences of the banking crisis. In 1890, Baring Brothers Bank, a well-known commercial bank in London, was on the verge of bankruptcy due to its bond speculation and huge investment deficit in Argentina. The international financial pyramid fell like dominoes, and the German banking industry was also involved in financial speculation in Argentina. The Bank of Berlin panic ensued. In the 1880s, German investors were caught in a speculative frenzy in international railway construction.The collapse of Baring Brothers, which lost $75 million worth of various Argentine bonds, shattered German investors' illusions about the miracle of financial speculation.

The main target of Argentine wheat exports is Europe.After Argentina's financial crisis, Ritter-Blumenser, a large Berlin grain trader who exported wheat to Europe, came up with the stupid idea of ​​taking advantage of Argentina's financial crisis to occupy the entire German wheat market.However, their plan failed, which fueled a financial panic in Germany.The bankruptcy of the Hirschfeld-Wolf private bank led to huge losses at the German Nellich-Weiss Fericher Bank, which in turn triggered a run on all German banks and the collapse of the Berlin stock market, which lasted until the Autumn 1891.

In response to the panic, the German Chancellor nominated 28 eminent persons to form a Commission of Inquiry, headed by Reichsbank President Dr. Richard Koch, to investigate the causes of the financial panic and make legislative proposals to prevent such events to happen again.The Cork Commission of Inquiry has broad representation in German society, including representatives from industry, agriculture, universities, political parties, and banking and financial circles. Most of the conclusions of the work of the Commission of Inquiry were enshrined in law in June and July 1896 when the German Parliament enacted the Exchange Act and the Margin Act. The Margin Act was almost the strictest law restricting financial speculation in any industrialized country at that time.Grain futures were banned and stock market speculation was severely restricted, and since then stock market speculation, a major factor affecting the German economy, has declined considerably.

The German Exchange Act of 1896 established a completely different organizational structure to the financial and banking systems of the United Kingdom and the United States. After the 1890s, these restrictive regulations also forced London financial institutions to reduce their financial activities in the German financial market, thereby reducing the influence of the London financial community on German economic policy.The fundamental differences between Anglo-American banking structures and the "German model" that prevailed in countries such as Germany, the Netherlands, Sweden, and Japan are still clearly visible today.