Banks, short-term debt and financial crises: theory, policy implications, and applications A comment

Abstract

A modern banking crisis is a substantially different species of animal from a historical banking panic. And, in modern banking crises, contractions in bank lending or large scale withdrawals of resources from the banking system do not generally occur.We must, therefore, look elsewhere for the causes of the recessions and the other real effects that appear to be associated with banking crises. The best current evidence appears to be that these consequences derive from changes in the rate of growth of bank liabilities that are used in payments. And, this observation seems to argue for the importance of analyzing banking crises in environments where there are explicit interconnections between the banking system and the monetary/payments system. Such analyses do, in fact, exist. Examples appear in the work of Champ, Smith, and Williamson (1996), and Chang and Velasco (2000).