Banking Crises without Panics
We examine historical banking crises through the lens of bank equity declines, which cover a broad sample of episodes of banking distress both with and without banking panics. To do this, we construct a new dataset on bank equity returns and narrative information on banking panics for 46 countries over the period 1870-2016. We find that even in the absence of panics, large bank equity declines are associated with substantial credit contractions and output gaps. While panics can be an important amplification mechanism, our results indicate that panics are not necessary for banking crises to have severe economic consequences. Furthermore, panics tend to be preceded by large bank equity declines, suggesting that panics are the result, rather than the cause, of earlier bank losses. We also use bank equity returns to uncover a number of forgotten historical banking crises and to create a banking crisis chronology that distinguishes between bank equity losses and panics.
The authors would like to thank Daniel Dieckelmann, Md Azharul Islam, and Jamil Rahman for their extraordinary research assistance. Isha Agarwal, Isaac Green, William Shao, Sylvia Lu, Felipe Silva, Bryan Tam, Yevhenii Usenko, and the librarians at the Harvard Business School Historical Collections also provided valuable assistance. The authors would also like to thank Jason Donaldson, Sam Hanson, Mikael Juselius, Arvind Krishnamurthy, Randy Kroszner, Solomos Solomou, Moritz Schularick, Andrei Shleifer, Eugene White, and seminar participants at the Bank for International Settlements, Boston Fed, Boston University, Cambridge University, Columbia University, Cornell University, Danmarks Nationalbank, EDHEC, Erasmus University Rotterdam, Federal Reserve Board, Georgetown University, Harvard University, Imperial College London, London Business School, MIT, OCC, Oxford University, Richmond Fed, Rutgers University, University of Bonn, University of British Columbia, University of Maryland, University of Rochester, University of Toronto, Yale University, Chicago Booth financial crises conference, fall 2018 NBER Corporate Finance meeting, Becker-Friedman Institute junior finance/macro conference, 2018 AEA meeting, 2019 AFA meeting, Kentucky Finance Conference, Columbia SIPA / BPI financial regulation conference, and the New York Fed/NYU Conference of Financial Intermediation for their comments and feedback. We thank Mika Vaihekoski and Frans Buelens for sharing data. A previous version of this paper was circulated with the title “Salient Crises, Quiet Crises.” The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.