The Macroeconomic Effects of Banking Crises: Evidence from the United Kingdom, 1750-1938

This paper investigates the macroeconomic effects of UK banking crises over the period 1750 to 1938. We construct a new annual banking crisis series using bank failure rate data, which suggests that the incidence of banking crises was every 30 or so years. Using our new series and a narrative approach to identify exogenous banking crises, we find that industrial production contracts by 8.2 per cent in the year following a crisis. This finding is robust to a battery of checks, including different VAR specifications, different thresholds for the crisis indicator, and the use of a capital-weighted bank failure rate.