Salient Crises, Quiet Crises

131 Pages Posted: 14 Feb 2018 Last revised: 7 Apr 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: April 4, 2019

Abstract

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

Baron, Matthew and Verner, Emil and Xiong, Wei, Salient Crises, Quiet Crises (April 4, 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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