What makes for a True Financial Crisis?

Financial system crashes have been a recurring problem for individual countries and their banks for centuries. But the impact of these disasters on national economies and the global economy has varied widely. While, for example, the 2007–2009 U.S. banking crisis stunned the world and fueled a deep recession, other financial calamities that seemed severe at the outset haven’t caused widespread economic harm.

Stanford’s Arvind Krishnamurthy and UCLA Anderson’s Tyler Muir research financial crisis through history to determine what could actually be called a true crisis starting in the late-1800s. They determined this based on the damage done to banking systems and the economic after-effects. The researchers also identified the market and economic conditions that typically led to true crises.

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