German banking crisis of 1931 reveals interbank market as key discipline provider.
The German Crisis of 1931 showed that during a financial panic, different types of depositors behave differently. Interbank deposit flows can predict bank distress early on, while wholesale depositors tend to withdraw from distressed banks later in the crisis. Retail deposits, on the other hand, remain stable despite the lack of deposit insurance. This suggests that discipline in the banking system is best maintained through the interbank market.