Federal Deposit Insurance Corporation

Sources of Historical Banking Panics Federal Deposit Insurance Corporation

Around the turn of the previous century banking panics in the U. S. happened fairly frequently. Before the creation of the Federal Reserve, major financial crises occurred in the United States in 1873, 1884, 1890, 1893, and 1907. Using a Markov-switching model (MSM) and weekly data between 1890 and 1909, we examine periods of panic and periods of relative calm and objectively date the onset and conclusion of the banking panics. The MSM also has imbedded within it a mechanism that allows us to examine the economic circumstances that might have precipitated a banking panic. This feature allows us to compare empirically several different hypotheses about what triggers a banking panic.