There has been a dramatic elimination of bank panics, at least until the financial crisis of 2007-2008, but the timing suggests that deposit insurance more than the Federal Reserve deserves the credit.Furthermore, note that more outbreaks of numerous bank failures occurred in the hundred years after the Federal Reserve was created than the hundred years before, with the Federal Reserve presiding over the most serious case of all: the Great Depression.Jalil (2015) in his comprehensive survey of previous literature defines as “major,” with two exceptions.First, I have omitted the very minor economic contraction of 1833, following Andrew Jackson’s phased withdrawal of government deposits from the Second Bank of the United States, since the impact on banks was almost entirely confined to the Second Bank and its branches.I have tried to integrate the best of the approaches of both economists and historians, using them to cross check each other.My chronology therefore differs in important ways from prior lists.So I have created a revised chronology in the table below.From the nineteenth century to the present, it distinguishes between three types of events: major recessions, bank panics, and periods of bank failures.
Not only does it have the longest downturn (43 months), but it also is one of the few depressions accompanied by both bank panics and numerous bank failures.Even if all suspensions had resulted in failures, which of course did not happen, we still have a failure rate of 0.7 percent for all commercial banks. Wheelock (1998), charts meant to show bank failures are instead clearly depicting statistics on the annual number of bank suspensions.Confusion of bank suspensions with bank failures can even infect serious scholarly work. Similarly, periods of numerous bank failures do not always coincide with bank panics, as the S&L crisis dramatically illustrates.Once the Great Depression is thrown out as a statistical outlier, we observe no significant change in the frequency, duration, or magnitude of recessions between the period before and the period after that unique downturn.Given that the Great Depression witnessed the initiation of extensive government policies to alleviate depressions and that the Federal Reserve had been created fifteen years earlier explicitly to prevent such crises, this overall historical continuity with a single exception indicates that government intervention and central banking has done little, if anything, to dampen the business cycle.Bank panics, even when accompanied by numerous suspensions (or what Friedman and Schwartz prefer to call “restrictions on cash payments” to distinguish them from government suspensions of redeemability), do not always result in a major number of bank failures.For instance, Calomiris and Gorton report the failure of only six banks out of a total of 6412 during the Panic of 1907, or less than 0.1 percent.These two categories are often confused or conflated, and yet this distinction is critical.Not all bank panics (periods of contagious runs and sometimes bank suspensions) were accompanied by numerous bank failures, nor were all periods of numerous failures accompanied by panics.This is one of the most striking cases in which some observers at the time and many economists today have confused mild secular deflation with a depression – a confusion exposed by George Selgin in (1997). GDP prior to the Civil War are even more problematic, making precise monthly dating of recessions impossible.Even the Kuznets-Kendrick estimates show no decline in real net national product during this recession, and an acceleration of its growth after 1875. Davis’s (2006) revised dating, shortening this recession to not more than 27 months, and probably less if he had attempted a monthly rather than just an annual revision of the depression’s end point. So I have relied upon the consensus of standard historical accounts along with the GDP statistics in (Carter 2006) to determine what qualifies as an actual recession and its annual dating.