Global: There’s Usually a Banking Crisis Somewhere!

Add together fundamental illiquidity and smallness of capital, and what have you got?

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

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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

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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

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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

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1941-1950

Years in decade with a crisis started: 0

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1951-1960
Years in decade with a crisis started: 0

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1961-1970
1963        Brazil
Years in decade with a crisis started: 1

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1971-1980
1971        Uruguay
1974        United Kingdom
1976        Chile, Central African Republic
1977        Spain, Germany, Israel, South Africa
1978        Venezuela
1979        Thailand
1980        Argentina, Chile, Egypt, Chad
Years in decade with a crisis started: 7

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1981-1990
1981        Ecuador, Mexico, Philippines, Uruguay
1982        Mexico, Hong Kong, Singapore, Columbia, Congo, Ghana, Trinidad and Tobago, Turkey
1983        Canada, Taiwan, Thailand, Hong Kong, Israel, Peru, Kuwait, Morocco, Equatorial Guinea, Niger
1984        United States, United Kingdom, Mauritania
1985        Argentina, Brazil, Gambia, Guinea, Kenya, Malaysia, Iceland
1986        Korea, Brunei
1987        Denmark, Norway, New Zealand, Bolivia, Costa Rica, Nicaragua, Cameroon, Mali, Mozambique, Tanzania,

    Bangladesh

1988        Lebanon, Benin, Burkina Faso, Central African Republic, Cote d’Ivoire, Lesotho, Madagascar, Senegal, Nepal,

    Panama

1989        Australia, Argentina, South Africa, El Salvador, Jordan, Papua New Guinea, Sri Lanka
1990        Brazil, Egypt, Algeria, Italy, Romania, Sierra Leone
Years in decade with a crisis started: 10

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1991-2000
1991        United Kingdom, Sweden, Finland, Czech Republic, Hungary, Poland, Slovakia, Greece, Congo, Djibouti,

    Liberia, Rwanda, Tunisia, Georgia, Guatemala

1992        Japan, Mexico, Indonesia, Estonia, Albania, Bosnia and Herzegovina, Angola, Chad, Congo, Kenya, Nigeria
1993        Venezuela, India, Iceland, Macedonia, Slovenia, Eritrea, Guinea, Kenya, Togo, Kyrgyz Republic
1994        France, Indonesia, Mexico, Brazil, Bolivia, Costa Rica, Ecuador, Estonia, Latvia, Armenia, Botswana, Burundi,

    Congo, Cote d’Ivoire, Ethiopia, Uganda, Jamaica, Turkey

1995        Russia, United Kingdom, Taiwan, Argentina, Paraguay, Azerbaijan, Belarus, Bulgaria, Lithuania, Cameroon,

    Gabon, Guinea-Bissau, Swaziland, Zambia, Zimbabwe, Jamaica

1996        Thailand, Croatia, Dominican Republic, Ecuador, Kenya, Myanmar, Tajikistan, Yemen
1997        China, Indonesia, Korea, Taiwan, Malaysia, Philippines, Vietnam, Ghana, Mauritius, Nigeria, Ukraine
1998        Russia, Hong Kong, Columbia, Ecuador, El Salvador, Estonia
1999        Bolivia, Honduras, Peru
2000        Nicaragua, Turkey
Years in decade with a crisis started: 10

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Total years in which a banking crisis started:
        1901-1950: 26 (52%) **
        1951-2000: 28 (56%)
Grand Total: 54 (54%)
*Source: Carmen M. Reinhart and Kenneth S. Rogoff, ‘This Time Is Different’ (2009), Appendix A.4, Historical Summaries of Banking Crises, pp 348-392.
** I have made one addition to Reinhart and Rogoff’s list: the United States in 1933, since I consider the nationwide collapse and closing of the banks that year to rank as a new crisis.

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Obviously, it is normal to have banking crises. They were especially frequent in the last three decades of the 20th century (let alone the first decade of the succeeding 21st century!) The 1980s and 1990s have the distinction of having had 100 percent of their years feature crises starting somewhere. Is there group learning in banking? If so, it is not observable on this list.
You will have noticed that the different decades were the 1940s, 1950s, and 1960s. In the 1940s, countries were busy destroying each other, which required running up government debt in service of the war with no questions asked and using the banks to help do so. The disaster was unimaginably greater than a mere financial crisis, and was followed by the disappearance of the old governments and currencies of the losers, the financial exhaustion of a victorious but bankrupt Britain, and then the anomalous postwar era of U.S. dominance, which allowed that country to bail out Europe with the Marshall Plan.
In the 1950s, the U.S. economy and its financial markets, banking system, companies, and currency enjoyed global dominance—a unique historical period bound not to last. It was fading in the 1960s and gone by the 1970s, which began with the United States abrogating its international commitment to redeem dollars for gold, and the steep depreciation of the dollar that followed. The normal round of banking crises returned and has not departed.
What is it about banking? The problem seems pretty straightforward. First, since banks promise to make everyone else liquid by par redemption of short-dated liabilities, they are themselves fundamentally illiquid and cannot on their own survive a liquidity panic. “Against such panic,” as economist David Ricardo wrote, “banks have no security on any system.” Second, banking is the most leveraged of businesses. The great banking theorist Walter Bagehot pointedly observed, “The main source of the profitableness of established banking is the smallness of the requisite capital.”