I have never been entirely satisfied with how either economists or historians identify and date past U.S. recessions and banking crises. Economists, as their studies go further back in time, have a tendency to rely on highly unreliable data series that exaggerate the number of recessions and panics, something most strikingly but not exclusively documented in the notable work of Christina Romer (1986b, 1989, 2009). Historians, on the other hand, relying on more anecdotal and less quantitative evidence, tend to exaggerate the duration and severity of recessions. So I have created a revised chronology in the table below. From the nineteenth century to the present, it distinguishes between three types of events: major recessions, bank panics, and periods of bank failures. I have tried to integrate the best of the approaches of both economists and historians, using them to cross check each other. My chronology therefore differs in important ways from prior lists.
One of the table’s benefits is that it gives a visual presentation of which recessions were accompanied by bank panics and which were not. Equally important, it distinguishes between bank panics and periods of significant numbers of bank failures. These two categories are often confused or conflated, and yet this distinction is critical. Not all bank panics (periods of contagious runs and sometimes bank suspensions) were accompanied by numerous bank failures, nor were all periods of numerous failures accompanied by panics.
Among other advantages, the table helps highlight how sui generis the Great Depression was. Not only does it have the longest downturn (43 months), but it also is one of the few depressions accompanied by both bank panics and numerous bank failures. Once the Great Depression is thrown out as a statistical outlier, we observe no significant change in the frequency, duration, or magnitude of recessions between the period before and the period after that unique downturn. Given that the Great Depression witnessed the initiation of extensive government policies to alleviate depressions and that the Federal Reserve had been created fifteen years earlier explicitly to prevent such crises, this overall historical continuity with a single exception indicates that government intervention and central banking has done little, if anything, to dampen the business cycle.
There has been a dramatic elimination of bank panics, at least until the financial crisis of 2007–2008, but the timing suggests that deposit insurance more than the Federal Reserve deserves the credit. Furthermore, note that more outbreaks of numerous bank failures occurred in the hundred years after the Federal Reserve was created than the hundred years before, with the Federal Reserve presiding over the most serious case of all: the Great Depression.
Because my table departs from previous lists and dating, in what follows, I explain the most important differences for each of the three categories. At the end of the post is a list of the most useful references I consulted.