² Kindleberger, C. P., Manias, Panics, and Crashes: A History of Financial Crises (New York, 1978)CrossRefGoogle Scholar; Minsky, H. P., John Maynard Keynes (New York, 1975)CrossRefGoogle Scholar.

³ Diamond, D. and Dybvig, P., ‘Bank runs, deposit insurance, and liquidity’, Journal of Political Economy, 91 (1983), pp. 401–19CrossRefGoogle Scholar.

⁴ Tacitus, Cornelius, The Annals of Imperial Rome (New York, 1996)Google Scholar.

⁵ Calomiris, C. W. and Gorton, G., ‘The origins of banking panics: models, facts, and bank regulation’, in Hubbard, R. G. (ed.), Financial Markets and Financial Crises (Chicago, 1991), pp. 107–73Google Scholar.

⁶ G. Caprio and D. Klingebiel, ‘Bank insolvencies: cross country experience’, World Bank Working Paper no. 1620 (1996).

⁷ Banking crises are also distinct from other financial crises because of their especially large social costs. Asset price collapses that are not accompanied by banking crises – such as those in the US in 1987 and 2000 – did not have the severe macroeconomic consequences of the financial crises that are accompanied by banking crises. See Bernanke, B. S., ‘Nonmonetary effects of the financial crisis in the propagation of the Great Depression’, American Economic Review, 73 (1983), pp. 257–76Google Scholar; Calomiris, C. W. and Hubbard, R. G., ‘Price flexibility, credit availability, and economic fluctuations: evidence from the US, 1894–1909’, Quarterly Journal of Economics, 104 (1989), pp. 429–52CrossRefGoogle Scholar; and Calomiris, C. W. and Mason, J. R., ‘Fundamentals, panics and bank distress during the depression’, American Economic Review, 93 (2003), pp. 1615–47CrossRefGoogle Scholar. Indeed, banking distress manifested in significant deposit shrinkage and loan losses, even when not associated with a banking crisis, typically poses substantial costs for the economy because of the contraction of money and loan supply.

⁸ Recent research (e.g. Calomiris and Mason, ‘Fundamentals, panics and bank distress’) has shown that the large number of bank failures in the US during the Great Depression, a phenomenon that was largely confined to small banks, primarily reflected the combination of extremely large fundamental macroeconomic shocks and the vulnerable nature of the country's unit banking system. Panic was not a significant contributor to banking distress on a nationwide basis until near the trough of the Depression, at the end of 1932. For these reasons, the Great Depression bank failure experience has more in common with the bank failures of the 1920s than the panics of the pre-World War I era.

⁹ This record for the pre-World War I period is one of impressive banking stability, especially considering the high volatility of the macroeconomic environment during that period. The roughly 140 episodes in which banking systems experienced losses in excess of 1% of GDP include more than 20 episodes of negative net worth in excess of 10% of GDP, more than half of which resulted in losses in excess of 20% of GDP (these extreme cases include, for example, roughly 25–30% of GDP losses in Chile in 1982–3, Mexico in 1994–95, Korea in 1997, and Thailand in 1997, and a greater than 50% loss in Indonesia in 1997).

¹⁰ During the pre-World War I era, Argentina in 1890 and Australia in 1893 were the exceptional cases; they each suffered banking system losses of roughly 10% of GDP in the wake of real estate market collapses in those countries. The negative net worth of failed banks in Norway in 1900 was roughly 3% and in Italy in 1893 roughly 1% of GDP, but with the possible exception of Brazil (for which data do not exist to measure losses), there seem to be no other cases in 1875–1913 in which banking losses in a country exceeded 1% of GDP. See C.W. Calomiris, ‘Victorian perspectives on the banking distress of the late 20th century’, working paper, 2007.

¹¹ Schweikart, L., Banking in the American South from the Age of Jackson to Reconstruction (Baton Rouge, 1987)Google Scholar.

¹² The states of Indiana, Ohio and Iowa during the antebellum period were the exceptions to this rule, as their mutual guarantee systems were limited to a small number of banks which bore unlimited mutual liability for one another, and which also had broad enforcement powers to limit abuse of that protection. See Calomiris, C. W., ‘Deposit insurance: lessons from the record’, Economic Perspectives, Federal Reserve Bank of Chicago, 1989 (May/June), pp. 10–30Google Scholar; Calomiris, C. W., ‘Is deposit insurance necessary? A historical perspective’, Journal of Economic History, 50 (1990), pp. 283–95CrossRefGoogle Scholar; and Calomiris, C. W., ‘Do vulnerable economies need deposit insurance? Lessons from US agriculture in the 1920s’, in Brock, P. L. (ed.), If Texas Were Chile: A Primer on Bank Regulation (San Francisco, 1992), pp. 237–349, 450–8Google Scholar.

¹³ See, for example, Caprio and Klingebiel, ‘Bank insolvencies’; A. Demirguc-Kunt and E. Detragiache, ‘Does deposit insurance increase banking system stability?’, IMF Working Paper no. 3 (2000); Barth, J., Caprio, G. Jr and Levine, R., Rethinking Bank Regulation: Till Angels Govern (Cambridge, 2006)Google Scholar; Demirguc-Kunt, A., Kane, E. and Laeven, L. (eds.), Deposit Insurance Around the World (Cambridge, MA, 2009)Google Scholar.

¹⁴ Bank clearing houses or informal alliances among banks to make markets in each other's deposits during crises required that members in these coalitions adhere to guidelines, and that they be able to monitor one another to ensure compliance. Not only did geography get in the way of such coordination, the sheer number of banks made collective action difficult. The benefits of one bank choosing to monitor another are shared, but the monitoring and enforcement costs are borne privately; coalitions with 30 members seemed able to motivate individual banks to bear the private costs of monitoring on behalf of the coalition, but coalitions of hundreds or thousands of banks unsurprisingly were not able to structure effective monitoring and enforcement.

¹⁵ Calomiris, C. W., US Bank Deregulation in Historical Perspective (Cambridge, 2000)CrossRefGoogle Scholar, ch. 1.

¹⁶ Calomiris, C. W., ‘The subprime turmoil: what's old, what's new, and what's next’, Journal of Structured Finance, 15 (2009), pp. 6–52CrossRefGoogle Scholar.

¹⁷ For Fannie and Freddie to maintain lucrative implicit (now explicit) government guarantees on their debts they had to commit growing resources to risky subprime loans: see C.W. Calomiris, ‘Statement before the Committee on Oversight and Government Reform, United States House of Representatives’, 9 December 2008; and Wallison, P.-J. and Calomiris, C. W., ‘The last trillion-dollar commitment: the destruction of Fannie Mae and Freddie Mac’, Journal of Structured Finance, 15 (2009), pp. 71–80CrossRefGoogle Scholar. Due to political pressures, which were discussed openly in emails between management and risk managers in 2004, Fannie and Freddie purposely put aside their own risk managers' objections to making the market in no-docs subprime mortgages in 2004. The risk managers correctly predicted, based on their experience with no-docs in the 1980s, that their imprudent plunge into no-docs would produce adverse selection in mortgage origination, cause a boom in lending to low-quality borrowers, and harm their own stockholders and mortgage borrowers alike. In 2004, in the wake of Fannie and Freddie's decision to aggressively enter no-docs subprime lending, total subprime originations tripled. In late 2006 and early 2007, after many lenders had withdrawn from the subprime market in response to stalling home prices, Fannie and Freddie continued to accumulate subprime risk at peak levels. Fannie and Freddie ended up holding $1.6 trillion in exposures to those toxic mortgages, half the total of non-FHA outstanding amounts of toxic mortgages: see E. J. Pinto, ‘Statement before the Committee on Oversight and Government Reform, United States House of Representatives’, 9 December 2008.

¹⁸ Calomiris, ‘Statement before the Committee’.

¹⁹ I have laid out my views on that reform agenda in Calomiris, ‘The subprime turmoil’; ‘Financial innovation, regulation, and reform’, Cato Journal, 29 (2009), pp. 65–92; and ‘Prudential bank regulation: what's broken and how to fix it’, in Anderson, T. L. and Soussa, R. (eds.), Reacting to the Spending Spree: Policy Changes We Can Afford (Stanford, CA, 2009)Google Scholar.