Salient Crises, Quiet Crises
131 Pages Posted: 14 Feb 2018 Last revised: 7 Apr 2019
Date Written: April 4, 2019
By constructing a new historical dataset of bank equity returns for 46 countries over the period 1870-2016, we find that large bank equity declines predict persistent credit contractions and output gaps, after controlling for nonfinancial equities, even outside banking crises defined by narrative approaches. Bank equity returns allow us to measure the potential hindsight biases of narrative-based approaches and to expand the sample of crises beyond those identified by narrative accounts, which tend to focus on salient crisis symptoms, such as panics and government interventions. We find that quiet crises, defined by large bank equity declines without panics, are also associated with substantial credit contractions and output gaps. We use bank equity returns to refine existing narrative chronologies by uncovering a number of forgotten banking crises and removing spurious crises. Large bank equity declines tend to precede other crisis indicators, suggesting that substantial bank losses are already present at the early stages of crises.
Keywords: banking crises, financial crises, bank equity
JEL Classification: G01, G15, G21, N20
Suggested Citation: Suggested Citation