Bank Failures in Theory and History: The Great Depression and Other "Contagious" Events
AbstractBank 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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Date of creation: Nov 2007
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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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
- NEP-BAN-2007-11-17 (Banking)
- NEP-CBA-2007-11-17 (Central Banking)
- NEP-HIS-2007-11-17 (Business, Economic & Financial History)
- NEP-MAC-2007-11-17 (Macroeconomics)
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