BIS report on financial analysis of systemic banking crises in the world
27 August 2009
On average, there have been between three and four systemic banking crises per year for the past quarter century.
BIS paper studies the length, depth and output costs of a sample of 40 systemic banking crises in 35 countries since 1980 to assess the likely real impact of the current crisis. Most, but not all, systemic banking crises in our sample coincide with a sharp contraction in output from which it takes several years to recover.
BIS findings suggest that the costs are higher when the banking crisis is accompanied by a currency crisis or when growth is low immediately before the onset of the crisis. Furthermore, when it is accompanied by a sovereign debt default, a systemic banking crisis is less costly.
The final part of the paper takes a longer-term view and studies the impact of crises on potential output several years down the road. We find that many systemic banking crises have had lasting negative effects on the level of GDP. And even in those cases in which trend growth was higher after the crisis than it had been before, making up for the output loss resulting from the crisis itself took years.
The report concluded that, on average, there have been between three and four systemic banking crises per year for the past quarter century. Not all of these have had visible real costs, but most have. In the restricted sample of 40 financial crises that were studied, a quarter resulted in cumulative output losses of more than 25 per cent of pre-crisis GDP. And one third of the crisis-related contractions lasted for three years or more.
Banking crises are also quite diverse. In fact, those that were studied appear to be practically unique in their evolution. In an important sense, the average crisis does not exist.
© BIS - Bank for International Settlements
