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The authors examine the international propagation of the financial crisis of 2008, and compare it with that of the crisis of 1931. They argue that the collateral squeeze in the United States, which became intense after the failure of Lehman Brothers created doubts about the stability of other financial companies, was an important propagator in 2008. They identify some common features in the propagation of the two crises, the most important being the flight to liquidity and safety. In both crises, deposit outflows were not the only important sources of liquidity pressure on banks: in 1931, the central European acceptances of the London merchant banks were a serious problem, as, in 2008, were the liquidity commitments that commercial banks had provided to shadow banks.
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