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Sep 22 2008 11:55PM EDT

Chart of the Day: Financial Crises Are Not That Rare

In the last four decades, there've been 394 instances of financial crises throughout the world, according to a new catalog of such calamities by Luc Laeven and Fabian Valencia of the I.M.F.

The researchers compile a list of three different types of crises: currency, debt, and systemic banking. The country with the worst luck? Argentina, which has suffered through four banking, four currency, and two debt crises.

The following chart shows the number of countries that have experienced the onset of a financial crises each year since 1970.

crises.gif Currency crises are far and away the most common type with 208, followed by banking with 124 and debt with 63 episodes. The early-to-mid 1980's featured relatively the most debt crises, while banking failures peaked in the mid-1990's. The number of currency crises were relatively stable in the 1980's and 90's, except in 1994 when 25 countries experienced one. Financial upheavals have become much less frequent since 2004.

The current meltdown is classified as a banking crisis by Laeven and Valencia. In a new working paper, they examine the impact of the 42 worst banking crisis. From the Economist:

The study looks at 42 crises in all, spanning 37 countries. Like America today, most governments began with ad hoc crisis management. In 74% of cases, for instance, governments pumped emergency loans into failing banks or guaranteed their liabilities. An equally common tactic has been regulatory forbearance. Governments allowed banks to hold less capital than was normally required or softened their rules in other ways. These tactical responses, however, often did not work and ended up increasing the overall bill from a crisis. "All too often", the economists conclude, "central banks privilege stability over cost in the heat of the containment phase."
The rest.

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