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It is Always the Shadow Banks: The Regulatory Status of the Banks that Failed and Ignited America’s Greatest Financial Panics

In: Coping with Financial Crises

Author

Listed:
  • Hugh Rockoff

    (Rutgers University)

Abstract

This paper surveys the failures that ignited major financial panics in the United States. It starts with the Panic of 1819 and covers 11 others through the Panic of 2008. This sample covers all of the “great” panics to judge from the consensus of financial historians. Several generalizations about the regulatory status of these banks stand out. (1) Panics typically were ignited by a sequence of failures. (2) Typically, the sequence included institutions from different parts of the country and different parts of the financial system, contributing to the fear that the entire financial system was at risk. (3) Typically, shadow banks (unregulated or lightly regulated banks) were an important component of the sequence, and often were the culminating failure in the sequence that triggered the panic. Big trouble following the failure of shadow banks is not a new problem that emerged in the twenty-first century, but rather a persistent problem that began in the nineteenth century.

Suggested Citation

  • Hugh Rockoff, 2018. "It is Always the Shadow Banks: The Regulatory Status of the Banks that Failed and Ignited America’s Greatest Financial Panics," Studies in Economic History, in: Hugh Rockoff & Isao Suto (ed.), Coping with Financial Crises, chapter 0, pages 77-106, Springer.
    • Handle: RePEc:spr:stechp:978-981-10-6196-7_4
    DOI: 10.1007/978-981-10-6196-7_4
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    Cited by:

    1. Terri Friedline & Zibei Chen, 2021. "Digital redlining and the fintech marketplace: Evidence from US zip codes," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(2), pages 366-388, June.
    2. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    3. Rockoff, Hugh, 2022. "Milton Friedman on bailouts," Journal of Financial Stability, Elsevier, vol. 63(C).

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