Bank failures and the cost of systemic risk: Evidence from 1900 to 1930
Paul Kupiec () and
Carlos Ramirez ()
Journal of Financial Intermediation, 2013, vol. 22, issue 3, 285-307
We measure the effect of bank failures on economic growth using data from 1900 to 1930, a period without active government stabilization policies and several severe banking crises. VAR model estimates suggest bank failures have long-lasting negative effects on economic growth. A bank failure shock involving one percent of system liabilities leads to a 6.5% reduction in GNP growth within three quarters and a measurable reduction for 10 quarters. Panel VAR model estimates for the 48 states show bank failures aggravate commercial non-bank failures. Institutional and regulatory features affect the intensity of the bank failure effect. We find that bank failures have a larger impact in states with deposit insurance, in states more heavily concentrated in agriculture, and in states with fewer large firms. However, because a number of states exhibit all three characteristics, we are not able to clearly identify the true marginal effects of these factors independently.
Keywords: Bank failures; Output growth; Credit channel; Systemic risk; Vector autoregressions; Non-bank commercial failures (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:22:y:2013:i:3:p:285-307
Access Statistics for this article
Journal of Financial Intermediation is currently edited by Elu von Thadden
More articles in Journal of Financial Intermediation from Elsevier
Bibliographic data for series maintained by Haili He ().