The effects of systemic banking crises in the inter-war period

Abstract

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Banking crises and business cycle: evidence for Italy(1861-2016)

“…In addition, given the paucity of detailed data on bank failures and bank net worth from the nineteenth and early-twentieth century, catalogues of banking crises that rely on quantitative definitions are liable to be inconclusive (Grossman, 2016; Reinhart and Rogoff, 2009). In this sense, da Rocha and Solomou (2015) classified the most severe banking crisis episodes of the inter-war period as systemic, but again a qualitative judgment is adopted to select relevant episodes, thus confirming the ample uncertainty in classification criteria.…”

“…In this paper, we focus on the banking crises recorded in Italy in the period 1861-2016 and propose a novel classification based upon the timing of the crisis with respect to the business cycle, introducing a simple and objective rule to distinguish between slowdown and inner-banking crises; the former occur close to a GDP contraction, whereas the latter appear to spread their effects with no substantial evidence of output loss. We recognize a new episode of banking crises (1928), in addition to those listed in the previous literature (Reinhart and Rogoff, 2009;De Bonis and Silvestrini, 2014;Schularick and Taylor, 2012; da Rocha and Solomou, 2015). We also check whether the crises occurring in proximity to a recession (slowdown crises) follow a boom-bust mechanism, which is considered the most common mechanism underlying (banking) crises with the worst economic consequences Banking crises (Aikman et al, 2015).…”

“…In addition, given the paucity of detailed data on bank failures and bank net worth from the nineteenth and early-twentieth century, catalogues of banking crises that rely on quantitative definitions are liable to be inconclusive (Grossman, 2016;Reinhart and Rogoff, 2009). In this sense, da Rocha and Solomou (2015) classified the most severe banking crisis episodes of the inter-war period as systemic, but again a qualitative judgment is adopted to select relevant episodes, thus confirming the ample uncertainty in classification criteria. Finally, there is considerable disagreement in many cases about when a particular crisis ended (it is easier in general to find information on the exact timing of the onset of a crisis), as the underlying indicators typically return to their "normal" levels only gradually (Babecky et al, 2014).…”

“…As to the severity of banking crises, Reinhart and Rogoff (2014) classified banking crises with respect to the depth of the related recession, but they focused only on the most severe (systemic) crises. Similarly, da Rocha and Solomou (2015) identified the most severe banking crisis episodes of the inter-war period, referred to as systemic, by examining the time-profile of the impact on GDP. As to the concept of systemic banking crisis, a qualitative judgment is often adopted to select relevant episodes, thus confirming the absence of a quantitative rule in classification criteria (Chaudron and de Haan, 2014).…”

Recovery from financial crises in peripheral economies, 1870–1913

“…Several previous studies are particularly relevant for the task at hand. Empirically, I follow Rocha and Solomou (2015) and Romer and Romer (2016) by using Jordà's (2005) local projection method to analyze post-crisis recovery periods. Specifically, I test the impact that terms of trade 3 and tariff 4 shocks have on economic output in post-crisis periods.…”