Working Paper: NBER ID: w31092
Authors: Carola Frydman; Chenzi Xu
Abstract: This article surveys the recent empirical literature on historical banking crises, defined as events taking place before 1980. Advances in data collection and identification have provided new insights into the causes and consequences of crises both immediately and over the long run. We highlight three overarching threads that emerge from the literature: first, leverage in the financial system is a systematic precursor to crises; second, crises have sizable negative effects on the real economy; and third, government interventions can ameliorate these effects. Contrasting historical episodes reveals that the process of crisis formation and evolution varies significantly across time and space. Thus, we also highlight specific institutions, regulations and historical contexts that give rise to these divergent experiences. We conclude by identifying important gaps in the literature and discussing avenues for future research.
Keywords: banking crises; financial stability; historical analysis; government intervention
JEL Codes: E44; E58; G01; G21; N10; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Leverage in the financial system (G21) | Banking crises (G01) |
| Banking crises (G01) | Real economy outcomes (employment, output) (E24) |
| Pre-crisis leverage levels (F65) | Post-crisis economic recovery (H12) |
| Government interventions (E65) | Economic harm from banking crises (F65) |