Abstract
In recent years, the rate of bank failures has risen to the highest level since the Great Depression. This article examines various possible explanations for the high failure rate. Although aggregate economic performance has been reasonably good, disparities in sectoral performance have widened, increasing the risks associated with inadequate diversification. The analysis suggests that a more consolidated, better diversified banking system might have survived the recent experience without an unusual increase in bank failures.
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This article was written while the author was in the Financial Studies Section of the Board of Governors of the Federal Reserve System. Views expressed in this article are not necessarily those of the Board of Governors or its staff. Aliki Antonatos provided excellent research assistance. Bob Rewald, Michael Keeley, the editor and two referees provided useful comments.
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Kling, A. The rise in bank failures from a macroeconomic perspective. J Finan Serv Res 1, 353–364 (1988). https://doi.org/10.1007/BF00235204
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DOI: https://doi.org/10.1007/BF00235204