RBA Annual Conference – 1999 Is Our Current International Economic Environment Unusually Crisis Prone? Michael Bordo and Barry Eichengreen^[*]

Appendix A

Table 1: Chronology of Banking and Currency Crises 1880–1971: 21 Countries

Table 2: Chronology of Banking and Currency Crises: Emerging Countries: 1973–1998

Appendix B: Pre-1914 Crisis Histories

Argentina: 1885 currency crisis

Foreign journalists cited the cause of this crisis as Argentina's ‘continual desire to advance its prosperity artificially’ by making use of foreign loans. There was a burst of new issues in London between 1880 and 1885, the foreign debt rising by 105 million pesos. Predictably, the supply of domestic credit and the volume of imports rose concurrently.

Reserve losses accelerated in 1885. The government attempted to defend parity initially but failed. Upon suspending convertibility, it then sought to restrain note issue (although a handful of banks was still allowed to issue inconvertible currency). The peso fell by about 27 per cent during the crisis, having been pegged at 47 pence prior to the events but falling to 37 in mid 1885. It hit a low of 29 in 1886.

Williams (1920) describes the crisis as brief and having relatively little impact on industrial production. The following table shows the percentage change in growth relative to the pre-crisis year, relative to the pre-crisis three- and five-year trends, and for comparable post-crisis periods. (Subsequent tables in this appendix are to be read similarly.)

In 1886 a new president was elected and attempted to reflate the economy by authorising additional note issues. This was followed by a move to free banking and a loosely regulated financial system that paved the way for the 1890 crisis.

Argentina: 1890 twin crisis

The years leading up to this crisis were ones of notable excess, according to Conant (1915). Banks made extensive loans without requiring much in the way of collateral. Real estate prices soared as banks issued notes in excess of the legal limit.

When land prices fell by 50 per cent between 1889 and 1890, the Banco de la Nacion found itself unable to pay its dividend, triggering a run. The peso fell by 36 per cent against sterling in 1890 and by 37 per cent in 1891.

To cope with the crisis, the government created the Bank of the Argentine Nation from the ruins of the old Bank of the Nation and other provincial banks. It took bad loans off their books while requiring the old banks surrender their specie and bonds and declared a three-year moratorium on interest payments.

In January 1891, Argentina secured a £15 million funding loan in London at 6 per cent. As conditions, investors demanded the government not incur additional liabilities for three years and that it retire 15 million pesos worth of notes in any year in which the gold premium exceeded 50 per cent. Though this loan provided breathing space, by 1892 it was clear the plan would not sustain the public finances. The ‘Romero fix’ (arreglo Romero) of 1893 rescheduled Argentina's debt repayment plan. Under this agreement, Argentina was obligated to pay only half its contractual obligations until 1901, when the amortisation of principal resumed.

Australia: 1893 banking crisis

This crisis reflected a domestic lending boom, as a result of which the quality of bank assets deteriorated significantly, and stringency on global credit markets increasingly reflecting the fallout from the Baring crisis. Scholars disagree on the relative importance of the two factors – with Australian specialists like Merrett (1989) emphasising the former, comparativists like Kindleberger (1984b) emphasising the latter – but there seems little question that both were at work.

The run-up to the crisis saw a frenzied land boom involving both pastoral and urban real estate. The period was one of rapid entry into the financial system by new intermediaries into an essentially unregulated banking system. New banks with weak internal controls and high costs were most inclined to commit to speculative, illiquid investments, but older banks may have succumbed to the same temptation under growing pressure of competition and declining spreads. In addition, the banking system increasingly funded itself by taking English and Scottish deposits from overseas investors who committed their savings on the assumption that such deposits were safe but were quick to liquidate them when they discovered otherwise.

The immediate lead-up to the crisis saw falling export prices, which made it hard for the pastoral sector to repay its loans (in turn undermining real estate speculation based upon pastoral expansion). The trigger was the closure of the Mercantile Bank of Australia and the Federal Bank of Australia, two of the new institutions, followed by the Commercial Bank of Australia. British deposits ran off, and residents moved theirs from smaller to larger banks. Cork (1894) puts deposits lost in the crisis at 7.5 per cent.

In New South Wales, bank notes were given legal-tender status to ease access to means of payment, and the government declared a 5-day bank holiday. Some banks never re-opened their doors. Tens of thousands of depositors had their claims extended – for four years and more – before any withdrawals could be made, and in some cases claims were converted into stock and preference shares. Bank share prices fell heavily. The banks retrenched, withdrawing from the business of long-term lending. The ‘depression’ of the 1890s followed.

Dowd (1992) challenges the conventional wisdom about this crisis, noting that the fall in the loans to capital ratio from 20 per cent in 1880 to 12.5 per cent in 1892 was not representative of the condition of most banks. He dismisses a domestic credit crunch on the grounds that advances did not actually decline in the period of failures. He argues that the big banks had already adjusted their portfolios by holding less speculative assets by 1890. In conclusion, he argues that the crisis was mainly caused by inadvisable government intervention in the financial sector. The bank holiday, he concludes, was unnecessary and damaged confidence. Consistent with his view, the standard historical statistics do not show much of an output decline.

Brazil: 1889–1891 twin crisis

In Brazilian history, this period of frantic expansion is known as the ‘encilhamento’. Brazil experienced an expansion of commerce so large, according to Subercaseaux (1922), that there was a shortage of names for new companies in 1890.

Wileman (1896) cites governmental borrowing as the motive force. Much of this was financed through note issue, milreis in circulation rising by 60 per cent in the year leading up to the crisis. Brazil had a paper currency regime up to 1889, though the milreis had strongly appreciated just prior to 1889. The crisis broke this streak, the milreis falling by 16 per cent in 1890.

Currency speculation set in once a new government assumed power, the transfer of responsibilities and revenues from the old administration to the new being disorganised. The government continued running large budget deficits in the face of a deteriorating balance of payments. It proposed further note issues to meet obligations. Goldsmith (1986) estimates the money supply, having equalled 200 million milreis in 1889, had shot up shot up to one billion milreis by 1891.

As banks came under pressure in 1890, the government allowed the Banco Nacional de Brasil and the Banco do Brasil to issue 100 million milreis to solve liquidity problems. While these notes were to have a 50 per cent metallic backing, convertibility was only to take place after the milreis had been at par for at least a year. As the milreis was an inconvertible paper currency and had suffered a massive depreciation in 1890, the law effectively allowed an increase in unbacked circulation.

In December of 1890 the government consolidated the banking sector. The Banco Nacional de Brasil and the Banco do Brasil were merged to form the Banco de la Republica do Estados Unidos do Brasil, which enjoyed a note-issuing monopoly. The note issue continued to increase rapidly from 515 million milreis in 1891 to 781 million in 1895.

Output declined sharply in the face of the financial-sector turmoil.

Brazil: 1897–1898 twin crisis

Conant (1915) notes that Brazil was in civil war and that the government had ‘sponsored extravagance at home’. The milreis depreciated by 16 per cent against the dollar in 1897 and 7 per cent in 1898. From parity (at 27 pence) in 1889, it fell to under 10 pence in 1898. One adverse effect was to increase the milreis value of Brazil's sterling-denominated external debt.

The crisis was ameliorated by a funding loan from Rothschild's in London, whose terms stipulated that the federal government could, Argentine-style, suspend its payments on its foreign debts, interior gold loans, and its gold railway guarantees until July 1901. Creditors were issued coupons or gold funding bonds at 5 per cent, secured by the customs revenues of Rio De Janeiro. The government was to deposit, with three Rio banks, securities which would back new note issues up to an equal amount. Eventually these securities would be retired, destroyed or used to buy drafts on Rothschild's; the money would thus constitute a fund for resuming payment on the interest of the outstanding debt. Finally, provision was made for constituting an emergency gold fund to be held in London. In the case of a future confidence crisis in Brazil, this fund would be used to meet demands of British creditors.

Brazil: 1900–1901 banking crisis

Murtinho is alleged to have held the value of the currency in an overvalued position in the run-up to the crisis. Manuel Pelaez argues that the crisis was then aggravated by the failure of inelastically supplied coffee exports to respond to the declining value of the milreis. Murtinho's deflationary policy was meant to expel inefficient coffee producers from the industry. The net effect was to concentrate the industry and limit competition. Pelaez and Suzigan (1976) claim this stifled coffee exports that normally would have accompanied depreciation and hastened recovery.

1900 brought a new round of reforms, as Murtinho attempted to usurp the Bank of Brazil's and commercial bankers' right of note emission. Congress authorised £1 million for the Bank of Brazil in order to help calm the money market and the banking system. But deposits nonetheless continued to run off, and loans were recalled.

Canada: 1893 currency crisis

As financial difficulties mounted south of the US-Canadian border, panic was communicated to Canada's financial system. Conant (1915) argues that Canada nonetheless remained an island of calm in a sea of financial turbulence, which he attributes to the custom of the Canadian banking houses of dealing in call rather than time bills of exchange in New York, assets that could be brought home in the case of a shock to the Canadian system. When crisis hit in 1893, Canadian banks recalled $8 million from New York. In addition, they raised their discount rates, sacrificed high profits, and protected their customers.

Although the rise in interest rates justifies the classification of this episode as a currency crisis, no impact on the country's growth rate is apparent.

Canada: 1908 currency crisis

Canada in 1907 was running a current account deficit which it financed out of foreign capital inflows. It then experienced a crop failure and encountered international financial turbulence. The combination rendered eastern banks unwilling to ship funds west to move crops to market. The banks raised loan rates, cut lending to all but the most creditworthy borrowers, and limited credit to farmers.

The subsequent recession was sharp but short. In response to credit stringency, the government authorised an increase in the dominion note issue to finance crop moving. Between November 1907 and May 1908, Canadian banks borrowed $5 million in dominion notes. Further relief appeared in 1908 when the banks were allowed to increase their note issue to 115 per cent of their paid-in capital plus reserves. The increase was legal only during the crop moving season (i.e. October to January).

Chile: 1887 currency crisis

The Chilean peso depreciated by 37 per cent between January 1881 and February 1887 (from 36 to 23 pence per peso). The country had just finished fighting a war with Bolivia. Commercially it seems to have been in fine shape, especially since valuable nitrate fields had been won in the war. It carried a current account surplus from 1884 through to 1886, although imports surpassed exports in 1887.

The fiscal house was in disarray, however. Chile ran a budget deficit in each year from 1884 to 1887.

After falling victim to a run on the peso, the government established a multi-part plan to establish convertibility. It retired 100,000 pesos of Treasury notes a month until the level reached 18 million (starting from a circulation of 25 million). It increased customs duties by up to 15 per cent to raise additional revenues. It aimed to establish a silver fund of 1.2 million pesos in the first year and 1.5 million pesos in each year thereafter. It imposed a limit on domestic note issue and required a 50 per cent backing of note emissions with bonds and/or gold to be held by the government.

Chile: 1898 twin crisis

The years leading up to this crisis have two histories. One is that there was no trouble on the horizon. There was an ample gold fund, and the bond-secured notes of the banks were on an even keel. Subercaseaux (1922) advances a more negative view, insisting that financial difficulties were already evident in 1895, when the mortgage market collapsed and interest rates rose.

During the crisis, 4 of the 7 Chilean incorporated banks closed their doors. The peso had been freely convertible into gold since 1895; the crisis ended this attempt at maintaining the gold standard. In July, Chile declared a 30-day moratorium and moved to a paper currency regime.

By the end of 1899, the exchange rate had begun to recover, and by 1902 the economy had done the same. This can be attributed in part to the rise in nitrate and copper prices that occurred in the first years of the new century and in part to the government's reforms. The reform of 31 July 1898 had two essential elements. First, the government authorised the printing of 50 million pesos in notes with legal tender status, while cancelling all outstanding bank notes. Second, it set January 1902 as the date for the return to (gold) convertibility.

Inconvertibility and the injection of domestic credit quelled the banking panics, according to Subercaseaux. Suspension of convertibility was the only feasible option because physical gold imports would have had to come over the snowy Andean range from Argentina, taking a minimum of 15 days.

The macroeconomic data needed to judge the severity of the ensuing recession are not available. (This also means that this crisis is not included in our empirical work.)

Chile: 1907 currency crisis

The period 1904 to 1907 was witness to an enormous commercial expansion. The capitalisation of firms increased by 400 per cent between 1900 and 1906. The crisis was foreshadowed in 1905, when the Chilean stock market crashed. The government's response was inflationary: the period 1904–07 saw a 200 per cent increase in government notes outstanding.

The peso fell by some 30 per cent in the crisis. To contain the financial consequences and prevent the currency crisis from precipitating a banking crisis, the government loaned treasury notes to banks that requested them. The policy obliged bankers to secure these borrowings with bonds from the mortgage banks and charged interest at 6 per cent.

Again, the macroeconomic data needed to judge the severity of the ensuing recession are not available. (Once more this also means that this crisis is not included in our empirical work.)

Denmark: 1908 banking panic

The main culprit in this crisis was turbulence on world markets. Conant (1915) attributes the crisis specifically to financial problems in neighbouring Germany (see below). In addition, banks such as the Freeholders Bank were known to possess non-performing assets, whose existence undermined confidence in the banking sector.

The conventional explanation for the speedy recovery is that Denmark's financial difficulties took place against a generally favourable economic backdrop. In addition, the Ministry of Finance and the Treasury orchestrated a consortium of five leading banks to assist and guarantee the liabilities of weak banks (notably the Grundegerbank and the Detailhandlersbank). This consortium created a fund that guaranteed all liabilities of the suspended banks and those of the Retailer's Bank, which also looked to be in a precarious state. This commitment by the banks secured the full payment to domestic and foreign creditors.

Finland: 1900 banking crisis

Frederiksen (1902) implicates the crisis in Russia and the Balkans and a drop in iron and steel prices in Finland's difficulties in this period, which placed much of its banking system at risk.

In response to the crisis, the Bank of Finland extended loans and rediscounts to other banks against their pledge of securities. It increased its note issue from 35 to 40 million markka without a corresponding increase in specie reserves. Banks were authorised to use foreign bills as legal cover for their own note issues, which permitted the latter to be increased by an additional five million.

Output effects of this crisis were noticeable, with the growth rate of real GDP falling by 4 per cent in the crisis year.

France: 1882 banking panic

France seems to have passed through a speculative period prior to 1882. The Credit Foncier increased its loans from 50 million francs in 1879 to 278 million in 1881, while other banks enjoyed huge increases in their stock prices. There was evidently a shift occurring in savings behaviour, as this was the period in which French citizens began to place their savings in financial assets.

Conant (1915) emphasises the overuse of negotiable securities afforded by the payment of the war indemnity to Germany and blames the financial innovations of the period, combined with speculation, for the crisis. Foreign influences include events in the United States, which was attracting gold due to its rapid growth and current account surplus. These pressures forced the Bank of France to adopt a more restrictive monetary policy to stem gold outflows.

Although treasury receipts rose in the years leading up to 1882, spending rose even faster. Historians have complained that most of the government's projects had little economic value (Conant 1915).

In response to problems among the banks, the Bank of France loaned 80 million francs in Paris to banks in distress and accepted nearly 100 million francs worth of securities in Lyon. Notwithstanding these actions, the Bank has been criticised (by, inter alia, Levy-Leboyer (1990) for not doing more. It kept interest rates high; as many firms were financing on a short-term basis, this policy had a deleterious effect on the economy.

Resolution was also expedited by international co-operation. The Bank of France borrowed £924,000 from the Bank of England on 30 January 1882, and an additional £2 million the following week, which it used to replenish its reserves and augment domestic credit.

Growth fell by five percentage points between 1882 and 1883 and failed to recover to the previous trend for sometime thereafter.

France: 1888–1889 twin crisis

In 1888, a French financier attempted to corner the copper market, and the Comptoir d'Escompte discounted copper warrants in conjunction with the scheme. In the event, production limits broke down, copper prices fell, and the Comptoir suffered heavy losses. Its head committed suicide, prompting a run. Though its assets seemed to be generally sound, they were not sufficiently liquid to satisfy the demands of depositors.

The Comptoir appealed to the Bank of France for assistance, and the latter advanced it 200 million francs on the guarantee of several Parisian banks. This enabled the Comptoir to meet the demands of its depositors and creditors, and even to repay a portion of the capital subscribed to its shareholders.

Conditions imposed on the Comptoir included paying a sum of 1.7 million francs to the government annually, creating a credit line of 180 million francs for the government with no interest charge, rendering services to place consols at no charge, and opening new branches. These obligations depended on approval by parliament, however, and in the end they were not enacted because the bill containing them became embroiled in parliamentary debate.

If the standard statistics are to be believed, growth fell by 14 percentage points in the crisis.

France: 1907 banking panic

According to Conant (1915), the main cause of this crisis was trouble in the United States, which raised demands for gold and money worldwide. France seems to have been in a strong position as far as reserves and the banking system were concerned. The governor of the Bank of France claimed that the majority of losses during 1907 were in silver and that these went to colonies and members of the Latin Union, all of whom France had an interest in protecting. In this light it is not surprising that the visible impact on GDP growth was mild.

Germany: 1893 currency crisis

In 1892 and 1893, the Reichsbank lost 18 per cent of its gold reserves. The literature points to several factors behind this pressure. One was the crisis in the United States, which led to a loss of confidence in German investments in that country. In addition, Italy's financial sector, in which Germany also had considerable investments, was undergoing a shakeout. The upcoming federal elections were unsettling; according to The Economist, it was possible that agricultural (bimetallist and protectionist) interests would make large gains. The federal finances were a cause for concern, as Germany had run chronic budget deficits in preceding years. And Russia raised tariffs on German goods early in 1993, creating fears of a trade war.

The government responded quickly. Increases in import duties were announced to make up deficiencies in revenues. The trade war with Russia was neutralised as officials pursued trade-treaty negotiations in 1894. And once problems abroad subsided toward the end of the year, the discount rate was reduced. By December, gold began to flow back in.

The growth effects of this crisis seem to have been significant once they set in, a year following its outbreak.

Germany: 1901 banking crisis

Russia had just experienced a crisis, and German banks with large investments there found their balance-sheet positions impaired. Stock prices in Berlin fell by 61 per cent during the crisis, electrical and tramway companies being hardest hit. Distress surfaced first among mortgage banks like the Bank of Pomerania and the Mortgage Bank of Mechlenberg Strelits, which were then rescued by the big discount banks. The discount banks also provided liquidity to other banks coming under pressure. Notwithstanding these efforts, the Dresdner Creditanstalt and the Bank of Leipzig were both forced to close their doors, and the Leipzig Bank was allowed to fail.

Visible output effects were a modest slowdown in the rate of growth in the crisis year.

Germany: 1907 currency crisis

US interest rates were high in 1905–06, placing German capital markets under strain. Raffalovich (1907) notes in addition evidence of fiscal excesses associated with the arms race with France and Britain. As evidence of the weakening state of German finances, The Banker's Magazine cites the Prussian loan issued in London in 1907, which aimed to raise £20 million but succeeded in attracting just £9 million.

Germany lost some 13 per cent of its gold reserves in the two years leading up to this crisis, forcing the Reichsbank to tighten. The tightness of monetary policy is the natural explanation for the slow recovery that followed.

Great Britain: 1890 banking crisis

This was the famous episode when the failure of the Buenos Aires Water Supply and Drainage Company loan threatened to bring down the House of Baring. Argentina enjoyed a massive influx of European capital. Baring's was the largest single creditor. Three-quarters of Baring's portfolio was in the securities of Argentina and Uruguay, despite mounting evidence of financial excesses on the part of the recipients.

In 1889, international markets were disturbed by an increase in the Bank of England's discount rate. Political unrest and increases in tariffs then fed pessimism about the Argentine market and brought about an end to the boom in Argentine securities issues.

The Bank of England increased its note issue during the crisis, but only for notes held in the Banking Department. (There was no increase in the fiduciary issue, in other words.) The Governor of the Bank of England also organised a rescue fund for Barings on the order of £17 million to help meet current interest obligations. These funds came from the Bank of England and leading merchant banks. The bank rate was meanwhile raised to 6 per cent.

International co-operation played a role in resolving this crisis. The Bank of England was assisted by the Bank of France and the Bank of Russia. From the former it borrowed nearly £3 million, while from the latter the government obtained a pledge of £1.5 million.

Capie (1992) argues that the impact in the British banking sector was not large, noting that there was no change in the reserve-deposit ratio. Nor is there evidence of a serious recession; the downturn that followed was both short and mild.

Greece: 1885 currency crisis

The drachma had been inconvertible since 1877. Between 1884 and 1895, the exchange rate on Paris fell by 16 per cent. The popular explanations for this Greek tragedy are a bad harvest and, more importantly, fiscal excesses. Deficits had led to the accumulation of a large debt which Greece was trying to augment with yet more loans to finance military and public works spending. While government outlays doubled between 1884 and 1885, tax increases were negligible. The currency suffered the consequences.

Since the relevant macroeconomic data are not available, this crisis is not included in our empirical analysis.

Italy: 1891–1894 twin crisis

The 1880s seem to have been a decade of strong demand for Italian securities, securities issued by manufacturing concerns in particular. In addition, the period saw a real estate boom funded by short-term credit from the banks of issue. The government did its part: the deficit reached five per cent of GNP by 1888–1889. When failures broke out in real estate companies, those companies brought their banks down with them.

Kindleberger (1984a) cites as one of the triggers of this crisis the tariff war between Italy and France. Raising the tariff in 1887 curtailed capital inflows and depressed the price of Italian government bonds. The rise in interest rates in turn pricked the land bubble.

One indication of the magnitude of the crisis was that the price of Bank of Tiberin stock fell from 600 in 1887 to 35 in 1891. Growth slowed significantly and remained depressed for the better part of five years (although the 1894 banking crisis, discussed below, had something to do with this).

In June and July of 1891, the government allowed banks of issue to increase their note issues from three to four times capital. Arguably, this limited the immediate severity of the crisis but without purging the underlying sources of financial weakness. In 1893 it came to light through that nearly 200 million lire in loans by the banks of issue were bad. In particular, one large bank, the Banca Romana, had issued excessive notes and duplicate notes.

The government overhauled the banking system by merging various banks and authorised an expansion of the note issue to address problems of credit stringency. In January of 1894, it authorised a further expansion of credit, which appears to have provided the immediate trigger for the currency crisis.

The recessionary impact of this second crisis was relatively mild. Not so its financial effects: the lira depreciated from 104 to more than 115 to the franc over the course of 1893. Italy lost 63 million lire in monetary gold in 1893 and 5 million lire in 1894.

Italy: 1907–1908 twin crisis

The years before 1907 were ones of rapid economic expansion. Italy was the recipient of large immigrant remittances, fuelling an increase in liquidity. The period was also marked by a frothy stock market. Kindleberger (1984a) argues that the mania spilled over to the banking system, as banks extended loans to individuals engaged in financial speculation and engaged in such speculation themselves.

With mounting financial difficulties in New York, London and Paris in 1906, pressure was placed on interest rates, and air was let out of the Italian financial bubble. The crash was followed by a sharp drop in output.

This was the period when the Bank of Italy began to assume its role as lender of last resort. Bonelli (1982) concludes that the subsequent recession was milder than would have been the case otherwise as a result of its intervention, although the standard statistics suggest that recovery was slow in coming.

Japan: 1900 twin crisis

Japan ran trade deficits in the period leading up to this crisis, fuelling persistent reserve losses. In addition, the gold stock of the Bank of Japan was the equivalent of only about $1 per person, which seemed to many as inadequate to support convertibility (which had only been established in 1897) and may have contributed to speculation on the yen.

Japan exported nearly 45 million yen in gold and silver in 1900. The currency depreciated by 2 per cent in 1897 and another two per cent in 1898, but recovered (by one per cent) in 1899, before giving back that ground in 1900. Between 1897 and 1900, the country exported nearly 42.8 million yen in gold. The gold stock in the country fell to a low of 53 million yen ($26 million) in 1900.

The output effects of the crisis were substantial: growth fell by 6 percentage points between 1900 and 1901.

Japan: 1904 currency crisis

The crisis of 1904 is conventionally portrayed as the result of reckless government spending and a monetary policy gone awry. Tamaki (1995) refers to Japanese colonial possessions in Taiwan and Korea as sinks for government funds. Advances from the central bank to the government were used to underwrite the country's colonial operations there.

One consequence of these fiscal excesses was large current account deficits, reaching 130 million yen in 1904 (compared to a level of reserves on the order of 90 million yen at year's end). Gold losses ran at nearly 14 million yen per month for four straight months. Cumulatively, this was a 50 per cent fall in reserves.

During the crisis, the government called upon the public to bring gold to the central bank for deposit. In addition, a loan from the London market of £10 million eased reserve constraints. Finance Minister Takahashi reported he was able to maintain order by taking loans on London and on New York. Conant (1915) cites Takahashi's vigorous work, Japan's renewed access to foreign capital, and public support in a period of diplomatic crisis as the reasons for the dissipation of the crisis, although it took some time for growth to recover to pre-crisis levels.

A serious recession ensued.

Japan: 1907–1908 twin crisis

The Tokyo stock market crashed in early 1907. This was followed by a brief recovery, but news of instability in the United States then sent financial markets into a tailspin. The weakness of silver prices and the consequent depreciation of China's currency then undermined the market position of Japanese producers further.

The Oriental Economist reports a loss of 10 million yen in gold and silver in 1907. The Bank of Japan intervened to rescue a number of distressed banks, while at the same time allowing others to fail. The recession that followed was severe.

Portugal: 1891 twin crisis

Portugal ran large budget deficits in the period leading up to this crisis. It was then hit by the Baring crisis, and by the revolution in Brazil where it had substantial investments.

Corruption is frequently cited in connection with the fiscal problem. The Public Works and Navy Ministries were spending extravagantly. Poor colonial administration was a further drain on Portugal's resources. Raffalovich (1892) points in addition to the close relationship between the Treasury and various public works companies.

The Milreis fell about 21 per cent from 53^13/16 in January of 1891 to 43 and ⅛ in December. The government addressed the crisis by attempting to sell French investors a five per cent interest in the national tobacco company, authorising a general moratorium for the Banco Nacional de Portugal and the Banco Lusitano, and passing a law allowing note emissions up to three times the paid-in capital of the banks. In 1892 the troubles had not yet been sorted out, and the government threatened holders of foreign debt with the same treatment given domestic debtors (i.e. a thirty per cent tax on coupon payments) if they did not renegotiate. Negotiations were then successfully concluded; the debt consolidation reduced interest payments on the foreign debt substantially.

This crisis appears to have had a fairly large impact on Portuguese growth.

Sweden: 1907 banking crisis

The period up to 1907 was one of steady expansion. Following reorganisation in 1897, the banking industry prospered. Between 1900 and 1907, branches of the non-note issuing (enskilda) banks rose from 157 to 261, branches of the Riksbank from 330 to 579. Their competition fuelled a lending boom. When loans and advances increased by 29 per cent in the 22 months prior to October 1907, confidence in the stability of the banking system began to weaken. The markets were then further disturbed by turbulence abroad, triggering bank runs.

The banks lost 6 million crowns from a reserve of 76 million, mainly in the last week of November. In response to gold losses, the Riksbank raised its discount rate, holding it at higher levels through January 1908. The exchange rate was successfully held.

The Riksbank helped national banks by lending when their foreign creditors called in loans. The government also arranged a 65 million franc loan from France, which it used to help distressed banks and to replenish the resources of the Riksbank. The Riksbank itself contracted abroad for a $5 million loan in foreign exchange on three month drafts.

Output effects of this crisis were substantial, although the economy bounced back quickly.

United States: 1884 banking panic

Friedman and Schwartz (1963) point to several causes of this crisis. Britain had raised the bank rate in 1883. The American commitment to the gold standard fell under a cloud due to bimetallist agitation. Commodity prices were weak; steel rail, for example, fell from $71 in 1880 to $35 in 1883. In May 1884, a series of brokerage firms failed, leading the public to grow suspicious of the position of others.

Conant (1915) estimates that national bank deposits declined in this crisis by some 8 per cent. A number of important banks were forced to suspend payments in a panic that was largely confined to the New York region. The New York Clearinghouse played a key role in containing it, issuing $22 million of clearinghouse certificates.

The output effects of this crisis were mild.

United States: 1891 currency crisis

Friedman and Schwartz (1963) cite international turbulence (fallout from the Baring crisis) as precipitating this crisis. In addition, some commentators emphasise increasing expenditure on government pensions as worsening the fiscal outlook and intensifying the pressure of demand. Large gold outflows occurred in the spring of 1891, stripping the US of about 10 per cent of its monetary gold stock in the first half of the year.

A short recession ensued. Treasury open-market purchases, which helped to calm the markets, may have been part of the explanation for its brevity. In addition, the Treasury imposed a tax of 40 cents per $1,000 on gold bars for export to discourage gold outflows (although the main effect of this was to cause gold to be exported instead in the form of coins). It charged 60 cents per $1,000 less than normal rates on sales of western legal tender exchange under the condition of being paid in gold (taking a page from the book of the Bank of France).

United States: 1893 twin crisis

Few observers noted signs of business trouble at the beginning of 1893, although some expressed uneasiness over the debate on the monetary standard. Conditions changed in February with the stock market crash, which was widely attributed to monetary uncertainty. That the Treasury reported only having about $108 million in gold reserves, down from over $200 million in 1888, did not boost confidence. Redemption of Treasury notes for gold became widespread in the spring of 1893. Many banks were called to ship reserves to the West where money and specie were in high demand. From 2 June to 24 June, New York banks lost more than $30 million in reserves, pushing them dangerously close to their minimum legally required reserve.

The crisis was resolved through political and financial action. The President made clear his disdain for the Silver Purchase Act. The Senate then voted on 30 October to repeal the Sherman Act, and the House followed on 1 November. This endorsement of the gold standard provided a boost to confidence. Meanwhile, Belmont purchased $62 million of government bonds, providing the Treasury with nearly $35 million ounces of gold. Belmont, Morgan and Rothschild restricted access to foreign exchange, imposing heavy costs on those wishing to purchase foreign bills.

The crisis occasioned a severe decline in output, according to the standard statistics, although the economy bounced back quickly.

United States: 1907 banking panic

Global credit stringency and domestic financial excesses helped to set the stage for the 1907 panic. Britain had required funds for its war in South Africa, and now Japan and Russia similarly raised funding for their war. The price of British consols dropped from 114 in 1896 to near 80 in 1907.

In the US, meanwhile, the number of state banks had been on the rise, from 9,500 in 1900 to near 13,000 in 1907. While their liabilities had risen by $5 billion, their cash reserves had only increased by $171 million. Friedman and Schwartz (1963) note that the ratio of deposits to cash reserves rose from 2:1 in 1897 to 6:1 in 1907. In addition, there was speculation in the stock and real estate markets.

The crisis began in New York but soon spread nationwide. A national restriction of payments of currency for deposits went into effect.

Between 1907 and 1908, the growth rate fell by 9 per cent.

Both domestic and foreign intervention helped to limit the consequences. J.P. Morgan, in co-operation with the New York Clearinghouse Syndicate and the Treasury, placed deposits with national banks with the goal of replenishing their liquidity. In the west, goods could not be transported due to difficulties in the conversion of bills of exchange; the Bank of Montreal promptly deposited gold at the Treasury of New York to grease these wheels. The French loaned nearly $16 million in silver eagles on the security of French commercial paper.