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Bank lending ‘manias’ in theory and history

Abstract

A popular view of banking crises sees them as consequences of prior bank lending “manias.” Such manias are supposed to be especially likely in legally unrestricted banking systems, where banks can issue notes and are not subject to statutory reserve requirements. Here it is argued that the bank lending mania hypothesis (1) exaggerates the role of subjective factors, including bankers' “confidence” or “optimism,” as a stimulus to bank lending, and (2) is not supported by evidence from past, legally unrestricted banking systems.

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Selgin, G. Bank lending ‘manias’ in theory and history. J Finan Serv Res 6, 169–186 (1992). https://doi.org/10.1007/BF01046629

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Keywords

  • Banking System
  • Subjective Factor
  • Bank Lending
  • Reserve Requirement
  • Popular View