Salient Crises, Quiet Crises

131 Pages Posted: 14 Feb 2018 Last revised: 9 Jul 2019

See all articles by Matthew Baron

Matthew Baron

Cornell University - Samuel Curtis Johnson Graduate School of Management

Emil Verner

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 6, 2019

Abstract

We construct a new historical dataset of bank equity returns for 46 countries over the period 1870-2016 to examine the role of bank losses and panics in banking crises. Large bank equity declines predict persistent credit contractions and output gaps. These declines capture episodes both with salient crisis symptoms, such as panics, and quieter periods of banking sector distress, allowing us to expand the sample of crises beyond those identified by previous narrative accounts. We find that quiet crises, defined by large bank equity declines without panics, are also associated with substantial credit contractions and output gaps. Large bank equity declines tend to precede panics, when they occur, suggesting that while panics can be an important amplification mechanism, panics are not necessary for the occurrence of severe economic consequences and tend to occur after banking losses are recognized. We use bank equity returns to uncover a number of forgotten historical banking crises and to create a banking crisis chronology emphasizing bank equity losses and failures.

Keywords: banking crises, panics, bank equity

JEL Classification: G01, G15, G21, N20

Suggested Citation

Baron, Matthew and Verner, Emil and Xiong, Wei, Salient Crises, Quiet Crises (July 6, 2019). Available at SSRN: https://ssrn.com/abstract=3116148 or http://dx.doi.org/10.2139/ssrn.3116148

Matthew Baron (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Emil Verner

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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