Banking Crisis
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A Banking Crisis is a financial crisis in which there are many bank runs.
- AKA: Run-on-the-Banks.
- Context:
- It can (typically) include one or more Bank Runs.
- It can (typically) affect an Undercapitalized Bank.
- …
- Example(s):
- Counter-Example(s):
- a Currency Crisis (such as a severe Currency Devaluation).
- See: Fiscal Crisis, Fractional Reserve Banking, Deposit Account, Insolvency, Self-Fulfilling Prophecy, Economic Recession, Great Depression, GDP, Bailout.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/List_of_banking_crises Retrieved:2014-8-10.
- This is a list of banking crises. A banking crisis is a financial crisis that affects banking activity. Banking crises include bank runs, which affect single banks; banking panics, which affect many banks; and systemic banking crises, in which a country experiences a large number of defaults and financial institutions and corporations face great difficulties repaying contracts.[1] A banking crisis is marked by bank runs that lead to the demise of financial institutions, or by the demise of a financial institution that starts a string of similar demises.[2]
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/Bank_run Retrieved:2014-4-10.
- … A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as people suddenly try to convert their threatened deposits into cash or try to get out of their domestic banking system altogether. A systemic banking crisis is one where all or almost all of the banking capital in a country is wiped out. The resulting chain of bankruptcies can cause a long economic recession as domestic businesses and consumers are starved of capital as the domestic banking system shuts down. According to Federal Reserve Chairman Ben Bernanke, the Great Depression was caused by the Federal Reserve System, [3] and much of the economic damage was caused directly by bank runs. The cost of cleaning up a systemic banking crisis can be huge, with fiscal costs averaging 13% of GDP and economic output losses averaging 20% of GDP for important crises from 1970 to 2007.
Several techniques have been used to try to prevent or mitigate the effects of bank runs. They have included government bailouts of banks, supervision and regulation of commercial banks, the organization of central banks that act as a lender of last resort, the protection of deposit insurance systems such as the U.S. Federal Deposit Insurance Corporation, and after a run has started, a temporary suspension of withdrawals. These techniques do not always work: for example, even with deposit insurance, depositors may still be motivated by beliefs they may lack immediate access to deposits during a bank reorganization.
- … A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as people suddenly try to convert their threatened deposits into cash or try to get out of their domestic banking system altogether. A systemic banking crisis is one where all or almost all of the banking capital in a country is wiped out. The resulting chain of bankruptcies can cause a long economic recession as domestic businesses and consumers are starved of capital as the domestic banking system shuts down. According to Federal Reserve Chairman Ben Bernanke, the Great Depression was caused by the Federal Reserve System, [3] and much of the economic damage was caused directly by bank runs. The cost of cleaning up a systemic banking crisis can be huge, with fiscal costs averaging 13% of GDP and economic output losses averaging 20% of GDP for important crises from 1970 to 2007.
- ↑ Template:Cite paper
- ↑ Reinhart C, Rogoff K (2009). "Varieties of crises and their dates" (PDF). This Time is Different: Eight Centuries of Financial Folly. Princeton University Press. pp. 3–20. ISBN 978-0-691-14216-6. http://mpra.ub.uni-muenchen.de/17452/1/MPRA_paper_17452.pdf. Retrieved 2009-11-28.
- ↑ http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/
1999
- (Kaminsky & Reinhart, 1999) ⇒ Graciela L. Kaminsky, and Carmen M. Reinhart. (1999). “The Twin Crises: the causes of banking and balance-of-payments problems.” In: American Economic Review, 89(3). doi:10.1257/aer.89.3.473
- ABSTRACT: In the wake of the Mexican and Asian currency turmoil, the subject of financial crises have come to the forefront of academic and policy discussions. This paper analyzes the links between banking and currency crises. The authors find that problems in the banking sector typically precede a currency crisis -- the currency crisis deepens the banking crisis, activating a vicious spiral; financial liberalization often precedes banking crises. The anatomy of these episodes suggests that crises occur as the economy enters a recession, following a prolonged boom in economic activity that was fueled by credit, capital inflows, and accompanied by an overvalued currency.