Bank Equity and Banking Crises
89 Pages Posted: 14 Feb 2018 Last revised: 9 Nov 2018
Date Written: November 2, 2018
We construct a new historical dataset on bank equity returns for 46 countries over the period 1870-2016 to develop an informative and objective measure of the occurrence and severity of banking crises. We find that large bank equity declines predict persistent credit contractions and output gaps, after controlling for non-financial equities, even outside of banking crises defined by narrative approaches. In particular, severe bank distress without panics are associated with adverse future outcomes. Large bank equity declines tend to precede other crisis indicators, suggesting that substantial bank losses are already present at the early stages of the crisis. Finally, large bank equity declines allow us to refine existing narrative chronologies of banking crises, in which we uncover a number of forgotten banking crises and remove spurious crises.
Keywords: banking crises, financial crises, bank equity
JEL Classification: G01, G15, G21, N20
Suggested Citation: Suggested Citation