Banking crisis

Extracted Attributes

• Causes

  Unsustainable macroeconomic policies (e.g., large current account deficits, unsustainable public debt), excessive credit booms, large capital inflows, balance sheet fragilities, speculative activity/economic bubbles.

• Definition

  A financial crisis occurring when many clients simultaneously withdraw funds from a bank due to fears of insolvency, known as a bank run.

• Escalation

  Can escalate into a banking panic (many banks suffer runs concurrently) or a systemic banking crisis (all or almost all banking capital in a country is wiped out).

• Core Mechanism

  Bank run, where customers withdraw cash from deposit accounts in a fractional-reserve banking system.

• Economic Impact

  Can cause long economic recessions, starve domestic businesses and consumers of capital, and lead to a chain of bankruptcies.

• Mitigation Challenge

  Even with deposit insurance, depositors may lack immediate access to funds during bank reorganization.

• Consequence of Bank Run

  Can become a self-fulfilling prophecy, increasing likelihood of default and leading to sudden bankruptcy.

• Industry Trend (1983-1994)

  Consolidation into fewer banking organizations; number of insured commercial banks declined by 28% (from 14,461 to 10,451).

• Prevention/Mitigation Measures

  Higher reserve requirements, government bailouts of banks, supervision and regulation of commercial banks, central banks acting as a lender of last resort, deposit insurance systems (e.g., U.S. Federal Deposit Insurance Corporation), temporary suspension of withdrawals.

• Average Fiscal Cost (1970-2007)

  13% of GDP for important crises.

• Historical Cause (Great Depression)

  Failure of the Federal Reserve System to prevent deflation and bank runs.

• Average Economic Output Loss (1970-2007)

  20% of GDP for important crises.

Timeline

• Amsterdam banking crisis occurred. (Source: Web Search Results)

  1763-01-01

• Bengal Bubble began. (Source: Web Search Results)

  1769-01-01

• British credit crisis occurred. (Source: Web Search Results)

  1772-01-01

• Dutch Republic financial collapse began. (Source: Web Search Results)

  1780-01-01

• Copper Panic occurred. (Source: Web Search Results)

  1789-01-01

• Panic of 1792 occurred. (Source: Web Search Results)

  1792-01-01

• Panic of 1796-1797 began. (Source: Web Search Results)

  1796-01-01

• Danish state bankruptcy occurred. (Source: Web Search Results)

  1813-01-01

• Post-Napoleonic Irish grain price and land use shocks began. (Source: Web Search Results)

  1815-01-01

• Panic of 1819 occurred. (Source: Web Search Results)

  1819-01-01

• Panic of 1825 occurred. (Source: Web Search Results)

  1825-01-01

• Panic of 1837 occurred. (Source: Web Search Results)

  1837-01-01

• Start of the period (1970-2007) where important banking crises averaged 13% of GDP in fiscal costs and 20% of GDP in economic output losses. (Source: Wikipedia)

  1970-01-01

• Start of the period (1970-2011) during which 147 systemic banking crises were identified in a global database. (Source: Web Search Results)

  1970-01-01

• Period of banking crises in the US that led to a strong trend toward consolidation in the banking industry. (Source: Web Search Results)

  1980-01-01

• Number of insured commercial banks in the US was 14,461. (Source: Web Search Results)

  1983-12-31

• Competitive Equality Banking Act (CEBA) was passed. (Source: Web Search Results)

  1987-01-01

• Number of insured commercial banks in the US declined to 10,451. (Source: Web Search Results)

  1994-12-31

• Global Financial Crisis (GFC) period began. (Source: Web Search Results)

  2007-07-01

• Dubai debt standstill occurred. (Source: Web Search Results)

  2009-01-01

• Venezuelan banking crisis began. (Source: Web Search Results)

  2009-01-01

• Global Financial Crisis (GFC) period ended. (Source: Web Search Results)

  2009-03-31

• Portuguese financial crisis began. (Source: Web Search Results)

  2010-01-01

• Energy crisis in Venezuela began. (Source: Web Search Results)

  2010-01-01

• Syrian economic crisis began. (Source: Web Search Results)

  2011-01-01

• Stock markets experienced a fall. (Source: Web Search Results)

  2011-08-01

• Bangladesh share market scam occurred. (Source: Web Search Results)

  2011-01-01

• Cypriot financial crisis began. (Source: Web Search Results)

  2012-01-01

• Chinese Banking Liquidity Crisis occurred. (Source: Web Search Results)

  2013-01-01

• Venezuela economic crisis began. (Source: Web Search Results)

  2013-01-01

• Brazilian economic crisis occurred. (Source: Web Search Results)

  2014-01-01

• Puerto Rican government-debt crisis began. (Source: Web Search Results)

  2014-01-01

• First Republic Bank was seized by regulators and sold to JPMorgan Chase. (Source: Web Search Results)

  2023-05-01

• A potential banking crisis was predicted in the All-In Podcast. (Source: Document 2de1674f-a7ac-4372-8a9f-9221aa26a8f2)

  2025-01-01

Bank run

A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking system (where banks normally only keep a small proportion of their assets as cash), numerous customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent. When they transfer funds to another institution, it may be characterized as a capital flight. As a bank run progresses, it may become a self-fulfilling prophecy: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. To combat a bank run, a bank may acquire more cash from other banks or from the central bank, or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return term deposits to reduce on-demand withdrawals or suspending withdrawals altogether. 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 former U.S. Federal Reserve chairman Ben Bernanke, the Great Depression was caused by the failure of the Federal Reserve System to prevent deflation, 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 bank runs or mitigate their effects. They have included a higher reserve requirement (requiring banks to keep more of their reserves as cash), 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.

Web Search Results

• List of banking crises - Wikipedia

  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 many defaults and financial institutions and corporations face great difficulties repaying contracts. A banking crisis is marked by bank runs that lead to the demise of financial institutions, or by the demise of a financial [...] | 1st Industrial Revolution (1760–1840) | Amsterdam banking crisis of 1763 Bengal Bubble of 1769 (1769–1784) British credit crisis of 1772–1773 Dutch Republic financial collapse (c. 1780–1795) Copper Panic of 1789 Panic of 1792 Panic of 1796–1797 Danish state bankruptcy of 1813 Post-Napoleonic Irish grain price and land use shocks (1815–1816) Panic of 1819 Panic of 1825 Panic of 1837 | [...] | Information Age (2009–present) | 2009 Dubai debt standstill Venezuelan banking crisis of 2009–2010 2010–2014 Portuguese financial crisis Energy crisis in Venezuela (2010–present) Syrian economic crisis (2011–present) August 2011 stock markets fall 2011 Bangladesh share market scam 2012–2013 Cypriot financial crisis Chinese Banking Liquidity Crisis of 2013 Venezuela economic crisis (2013–present) 2014 Brazilian economic crisis Puerto Rican government-debt crisis (2014–2022)

• Banking Crisis - World Bank

  A (systemic) banking crisis occurs when many banks in a country are in serious solvency or liquidity problems at the same time—either because there are all hit by the same outside shock or because failure in one bank or a group of banks spreads to other banks in the system. More specifically, a systemic banking crisis is a situation when a country’s corporate and financial sectors experience a large number of defaults and financial institutions and corporations face great difficulties repaying [...] Systemic banking crises can be very damaging. They tend to lead affected economies into deep recessions and sharp current account reversals. Some crises turned out to be contagious, rapidly spreading to other countries with no apparent vulnerabilities. Among the many causes of banking crises have been unsustainable macroeconomic policies (including large current account deficits and unsustainable public debt), excessive credit booms, large capital inflows, and balance sheet fragilities, [...] A global database of banking crises was first compiled by Caprio and Klingebiel (1996). The latest version of the database, updated to reflect the recent global financial crisis, is available as Laeven and Valencia (2012). It identifies 147 systemic banking crises (of which 13 are borderline events) from 1970 to 2011. It also reports on 218 currency crises (defined as nominal depreciation of the currency vis-à-vis the U.S. dollar of at least 30 percent that is also at least 10 percentage points

• Banking Crisis - The New York Times

  High turnover and low pay are luring its staff to the private sector, leaving the banking supervisor, and the financial system, more vulnerable to a crisis. By Alan Rappeport The Federal Deposit Insurance Corporation has struggled to retain bank examiners in high-cost areas like New York City. Smaller Banks Are Scrambling as Share Prices Plunge [...] A First Republic Bank in downtown San Francisco where the troubled institution is headquartered. A Timeline of How the Banking Crisis Has Unfolded First Republic’s downfall was just the latest in a series of problems affecting midsize banks. By Madeleine Ngo Regulators seized First Republic Bank and sold it to JPMorgan Chase on Monday, a move aimed at curbing a two-month banking crisis. First Republic Bank Is Seized by Regulators and Sold to JPMorgan Chase [...] The flurry of transactions highlighted how members of Congress continue to buy and sell stocks in industries that intersect with their official duties. By Kate Kelly An account belonging to Representative Jared Moskowitz’s children sold shares of Seacoast Banking Corporation as fears of a banking crisis rattled investors. Earnings Season Arrives With Recession Fears Front and Center

• [PDF] The Banking Crises of the 1980s and Early 1990s - FDIC

  Although the overall performance of the banking industry varied greatly during the 1980–94 period, in its structure the industry showed a strong trend in one direction—toward consolidation into fewer banking organizations. This trend was partly due to the relaxation of branching restrictions.8 From the end of 1983 through the end of 1994, the number of in-sured commercial banks declined by 28 percent, from 14,461 to 10,451. The number of separate corporate units—bank holding companies plus [...] Chapter 3, “Commercial Real Estate and the Banking Crises”; and O’Keefe, “The Texas Banking Crisis.” 27 “Speculative activity” in this context is synonymous with economic “bubbles” defined as follows: “if the reason that the price is high today is only because investors believe that the selling price will be high tomorrow—when “fundamental” fac-tors do not seem to justify such a price—then a bubble exists.” See Joseph E. Stiglitz, “Symposium on Bubbles,” Journal of Economic Perspectives 4, no. [...] As the thrift crisis deepened and commercial bank problems were developing, Con-gress passed the Competitive Equality Banking Act of 1987 (CEBA). It provided for re-capitalizing the fund of the Federal Savings and Loan Insurance Corporation (FSLIC) through the Financing Corporation (FICO), authorized a forbearance program for farm banks, extended the full-faith-and-credit protection of the U.S. government to federally in-sured deposits, and authorized bridge banks. Two years later, again

• The Global Financial Crisis | Explainer | Education | RBA

  The global financial crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid 2007 and early 2009. During the GFC, a downturn in the US housing market was a catalyst for a financial crisis that spread from the United States to the rest of the world through linkages in the global financial system. Many banks around the world incurred large losses and relied on government support to avoid bankruptcy. Millions of people lost their jobs as the [...] In response to the crisis, regulators strengthened their oversight of banks and other financial institutions. Among many new global regulations, banks must now assess more closely the risk of the loans they are providing and use more resilient funding sources. For example, banks must now operate with lower leverage and can’t use as many short-term loans to fund the loans that they make to their customers. Regulators are also more vigilant about the ways in which risks can spread throughout the [...] banks.