Salient Crises, Quiet Crises
131 Pages Posted: 14 Feb 2018 Last revised: 9 Jul 2019
Date Written: July 6, 2019
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: Suggested Citation