Bank failures and rescues
Many of the numerous bank failures that have occurred over the years have not proved harmful to their national economies. Governments have found it necessary, however, to guard against the danger of "systemic failure" resulting from a general loss of confidence in the banking system and have, from time to time, rescued a failing bank in order to avert that danger. There have nevertheless been several instances of banking crises that have done serious damage to national economies.
- For definitions of the terms shown in italics in this article, see the glossary.
- For a detailed list of failures and rescues in their historical sequence, see the timelines subpage.
Background
The vulnerability of banks
A study of the 1932 Chicago banking crisis indicated that riskiness of assets distinguished failed banks from survivors, suggesting an absence of contagion. [1]
The case for rescues
lender of the last resort [2]
The inter-war years
The United States
In the immediate post-war years there was a rapid growth in the number of United States banks, and there were relatively few failures. In 1921, however, there was a surge in the number of bank failures, especially in farming areas, and the number of banks started to decline. In 1930, a massive further increase in failures occurred in response to the Great Recession, and failures continued at a high level until the "banking holiday" of 1933. The introduction in that year of the Federal Deposit Insurance scheme restored investors' confidence, and there were few failures during the remainder of the inter-war period.