The Origins of Banking Panics: Models, Facts, and Bank Regulation
Banking panics are the central event informing and rationalizing government intervention into the banking industry. In the last decade progress has been made in understanding the origins of panics. This essay reviews recent theoretical and empirical work on the origins of banking panics. New evidence on the causes of banking panics is introduced. Banking panics do not appear to have been caused by random withdrawal risks associated with seasonal shocks in the countryside. Instead, adverse economic news, in concert with asymmetric information about the incidence of shocks, and problems of bank asset diversification associated with unit banking seem to have led to banking panics.
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