Banking Crises Without Panics

145 Pages Posted: 14 Feb 2018 Last revised: 14 Jan 2021

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)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2020

Abstract

We examine historical banking crises through the lens of bank equity declines, which cover a broad sample of episodes of banking distress both with and without banking panics. To do this, we construct a new dataset on bank equity returns and narrative information on banking panics for 46 countries over the period of 1870– 2016. We find that even in the absence of panics, large bank equity declines are associated with substantial credit contractions and output gaps. While panics are an important amplification mechanism, our results indicate that panics are not necessary for banking crises to have severe economic consequences. Furthermore, panics tend to be preceded by large bank equity declines, suggesting that panics are the result, rather than the cause, of earlier bank losses. We also use bank equity returns to uncover a number of forgotten historical banking crises and to create a banking crisis chronology that distinguishes between bank equity losses and panics.

Keywords: banking crises, panics, bank equity

JEL Classification: G01, G15, G21, N20

Suggested Citation

Baron, Matthew and Verner, Emil and Xiong, Wei, Banking Crises Without Panics (August 1, 2020). Quarterly Journal of Economics, Forthcoming, 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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