By Alex J. Pollock Wednesday, September 21, 2011
Filed under: Economic Policy, Numbers
Should we be surprised by banking crises? No. We simply have to face the fact that banking is fundamentally risky. As I realized long ago while working in banks, the reason bankers needed to wear dark suits and have classic buildings was to look conservative in order to offset the real riskiness of what we were doing.
In their book This Time Is Different, Carmen Reinhart and Kenneth Rogoff point out that some countries seem to have “graduated” from defaults on the debt of their own government (although the continuing European sovereign debt crisis may make us less sanguine about this). But no one has figured out how to avoid periodic crises in banking. “Thus far,” they observe, “no major country has been able to graduate from banking crises.”
Indeed, drawing from Reinhart and Rogoff’s very long list of banking crises, we find that in the century between 1901 and 2000, a banking crisis began in one or more countries (often in several simultaneously) in 54 of the 100 years! The crises can last multiple years; the list below shows the initial years. Of course, this data does not include the great international banking crisis of 2007-09, now rekindled in Europe from 2010-?, and looks instead back to a century of “good old days.”
So let us consider the entire 20th century, in which there were both vast catastrophes and amazing progress, and in which a great many things changed dramatically, but in which, the record shows, the tendency of banking to experience a crisis did not change.
Banking Crises, 1901-2001, According to Reinhart and Rogoff*
Year Countries
1901-1910
1901 Germany, Japan
1902 Denmark
1904 Canada
1907 United States, France, Italy, Denmark, Sweden, Japan, Chile, Egypt
1908 Canada, Scotland, India, Mexico
1910 Switzerland
Years in decade with a crisis started: 6
1911-1920
1912 Canada
1914 Belgium, Italy, Netherlands, Argentina, Brazil, United States
1917 Japan
1920 Spain, Portugal
Years in decade with a crisis started: 4
1921-1930
1921 Denmark, Finland, Norway, Italy, Netherlands
1922 Sweden
1923 Canada, China, Japan, Brazil, Portugal
1924 Austria, Spain
1925 Belgium
1926 Poland
1927 Japan
1929 United States, Austria, Mexico
1930 France, Italy, Estonia
Years in decade with a crisis started: 9
1931-1940
1931 Germany, Austria, Belgium, Czechoslovakia, Denmark, Finland, Norway, Sweden, Estonia, Latvia, Greece,
Hungary, Poland, Romania, Portugal, Spain, Switzerland, Argentina, Egypt, Turkey, China
1933 Switzerland, United States
1934 Argentina, Belgium, China
1935 Italy
1936 Norway
1939 Belgium, Finland, Netherlands
Years in decade with a crisis started: 6
1941-1950
Years in decade with a crisis started: 0
1951-1960
Years in decade with a crisis started: 0
1961-1970
1963 Brazil
Years in decade with a crisis started: 1
1971-1980
1971 Uruguay
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