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Bank Failures in Theory and History: The Great Depression and Other "Contagious" Events

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Author Info
Charles W. Calomiris

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Abstract

Bank failures during banking crises, in theory, can result either from unwarranted depositor withdrawals during events characterized by contagion or panic, or as the result of fundamental bank insolvency. Various views of contagion are described and compared to historical evidence from banking crises, with special emphasis on the U.S. experience during and prior to the Great Depression. Panics or "contagion" played a small role in bank failure, during or before the Great Depression-era distress. Ironically, the government safety net, which was designed to forestall the (overestimated) risks of contagion, seems to have become the primary source of systemic instability in banking in the current era.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13597.

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Date of creation: Nov 2007
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Handle: RePEc:nbr:nberwo:13597

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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G2 - Financial Economics - - Financial Institutions and Services
N2 - Economic History - - Financial Markets and Institutions

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  1. Lucia, Joseph L., 1985. "The failure of the bank of United States: A reappraisal," Explorations in Economic History, Elsevier, vol. 22(4), pages 402-416, October. [Downloadable!] (restricted)
  2. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. [Downloadable!] (restricted)
    Other versions:
  3. Gr da, Cormac & White, Eugene N., 2003. "The Panics of 1854 and 1857: A View from the Emigrant Industrial Savings Bank," The Journal of Economic History, Cambridge University Press, vol. 63(01), pages 213-240, March. [Downloadable!]
  4. Enrica Detragiache & Asli Demirgüç-Kunt, 2000. "Does Deposit Insurance Increase Banking System Stability?," IMF Working Papers 00/3, International Monetary Fund.
  5. Douglas W. Diamond & Raghuram G. Rajan, 2002. "Liquidity Shortages and Banking Crises," NBER Working Papers 8937, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Rousseau, Peter L., 2002. "Jacksonian Monetary Policy, Specie Flows, And The Panic Of 1837," The Journal of Economic History, Cambridge University Press, vol. 62(02), pages 457-488, September. [Downloadable!]
    Other versions:
  7. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. [Downloadable!] (restricted)
    Other versions:
  8. Gary H. Stern & Ron J. Feldman, 2003. "Too big to fail: the hazards of bank bailouts," The Region, Federal Reserve Bank of Minneapolis, issue Dec, pages 60-65. [Downloadable!]
  9. Charles W. Calomiris & Joseph R. Mason, 2003. "Fundamentals, Panics, and Bank Distress during the Depression," American Economic Review, American Economic Association, vol. 93(5), pages 1615-1647, December. [Downloadable!] (restricted)
  10. Charles W. Calomiris & Joseph R. Mason, 2003. "Consequences of Bank Distress during the Great Depression," American Economic Review, American Economic Association, vol. 93(3), pages 937-947, June. [Downloadable!] (restricted)
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