Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

AI Summary. A study of more than 37,000 US banks from 1865 to 2023 finds that most bank failures follow a gradual, multi-year deterioration in solvency, as credit losses erode income and capital before a run or a supervisory closure. The authors reject runs on otherwise solvent banks as a plausible cause for at least 80% of failures before deposit insurance.

Sergio Correia, Stephan Luck, and Emil Verner Federal Reserve Bank of New York
Date Posted:

A study covering most US commercial banks from 1865 – 2023 finds that 80% of pre-FDIC bank failures resulted from “rising asset losses” and “deteriorating solvency,” not mere bank runs.

Do bank failures result from gradual solvency deterioration rather than runs?

Core argument: Drawing on more than 37,000 U.S. banks from 1865 to 2023, the authors reject bank runs as a plausible cause of failure for at least 80% of pre-FDIC failures, concluding runs on otherwise solvent banks were not a common cause.

This paper studies failing banks using data on more than 37,000 banks from the United States spanning 1865-2023. Our findings suggest that most bank failures are the result of a deterioration of a bank’s solvency - [which] is typically gradual and takes place over several years. The realization of credit risk reduces income and erodes capital buffers. The erosion of a bank’s profitability and capitalization ultimately results either in a bank run or a supervisory decision to close the bank, the former being more common in the historical data. Both depositors and supervisors seem to be slow to react to information about fundamentals, making bank failures highly predictable. [Though] our empirical approach does not allow us to identify the exact cause of failure, our evidence allows us to reject bank runs as a plausible cause of bank failure for a robust majority of at least 80% of pre-FDIC failures. Hence bank runs on otherwise solvent banks are not a plausible common cause of bank failures for most bank failures in the history of the U.S.

Takeaways by Macro Roundup® AI

  1. Drawing on more than 37,000 U.S. banks from 1865 to 2023, the authors reject bank runs as a plausible cause of failure for at least 80% of pre-FDIC failures, concluding runs on otherwise solvent banks were not a common cause.
  2. Most bank failures follow a gradual deterioration of solvency over several years, as the realization of credit risk reduces income and erodes capital buffers before a bank run or a supervisory closure.
  3. Depositors and supervisors appear slow to react to information about bank fundamentals, making bank failures highly predictable, with runs more common than supervisory closures in the historical data.

Related Articles:

  • Deposit Insurance, Uninsured Depositors, and Liquidity Risk During Panics — Commercial banks located near a post office that accepted federally insured deposits were more likely to close during the Great Depression, and this effect weakened sharply after deposit insurance was extended to commercial banks. The authors interpret this as a competitive liquidity effect arising from incomplete insurance coverage.
  • The Puzzling Persistence of Financial Crisis — Financial crises are costly, with average declines of 5.5% of real GDP and median fiscal costs of 16% of real GDP to resolve distressed banks. The authors identify four categories of causal factors: politically motivated risk subsidies such as government support for housing credit, shifts in investor risk preferences, investor learning, and fraud.
  • Credit Allocation and Macroeconomic Fluctuations — Credit expansions disproportionately channel credit to non-tradable sector firms and households, and the authors find that the sectoral allocation of credit predicts future GDP paths and the likelihood of systemic banking crises. Credit growth to non-tradable industries predicts boom-bust output patterns and elevated financial fragility, while credit to tradable industries is associated with higher future productivity growth.
Showing 8 database articles primarily about Banking
Currently filtering by: