The high social costs of financial crises imply that economists, policymakers, businesses, and households have a tremendous incentive to understand, and try to prevent them. And yet, so far we have failed to learn how to avoid them. In this article, we take a novel approach to studying financial crises. We first build ten case studies of financial crises that stretch over two millennia, and then consider their salient points of differences and commonalities. We see this as the beginning of developing a useful taxonomy of crises – an understanding of the most important factors that reappear across the many examples, which also allows (as in any taxonomy) some examples to be more similar to each other than others. From the perspective of our review of the ten crises, we consider the question of why it has proven so difficult to learn from past crises to avoid future ones.

Excessively easy bank credit – visible in unusually small credit risk spreads and rapid loan growth – is often posited as a root cause of unsustainable asset price booms. This paper considers whether an increase in bank risk tolerance drove high loan growth that coincided with Florida's land boom of the mid-1920s, the first Florida housing boom in which buyers from around the nation participated. Estimates suggest that an astounding 20 million lots were offered for sale in Florida at that time. Our detailed narrative and empirical evidence suggest that the facts do not require the assumption of increased risk appetite during the boom. We find that most Florida banks that failed were associated with the Manley-Anthony chain and did not exhibit increases in observable indicators of risk during the boom. Instead, their increases in risk mainly reflected hidden choices either to lend to bank insiders on a preferential basis or to fund other banks that were engaged in such risky and often fraudulent activities. Bank regulators seem to have been complicit in the hidden risk-taking. Even informed investors would have been left in the dark about the amount of risk that was growing in Florida.

We examine the social costs of asymmetric-information-induced bank panics in an environment without government deposit insurance. Our case study is the Chicago bank panic of June 1932. We compare the ex ante characteristics of panic failures and panic survivors. Despite temporary confusion about bank asset quality on the part of depositors during the panic, which was associated with widespread depositor runs and bank stock price declines, the panic did not produce significant social costs in terms of failures among solvent banks.

Demandable-debt finance by banks warrants explanation because it entails costs of bank suspension, liquidation, and idle reserve holdings. An explanation is developed in which demandable debt provides incentive-compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uniformed depositors. Demandable debt attracts funds by giving depositors an option to force liquidation. Its usefulness in transacting follows from information-sharing between monitors and nonmonitors.

By many measures, bank consolidation waves, historically and currently, produce substantial efficiency gains associated with reduced operating costs, enhanced diversification, and the enrichment of bank-customer relationships. These gains may be hard to discover in panel or cross-sectional analyses of individual banks because merger waves pose special econometric pitfalls for event studies of stock returns and bank performance comparisons. We review these problems and summarize lessons from nine case studies of individual merger transactions which offer qualitative evidence that potential econometric pitfalls can be important. Those conclusions suggest placing greater weight on cross-regime comparisons for measuring gains during bank merger waves.

Bank safety nets, originally proposed as a means of stabilizing financial systems, have become an important destabilizing influence. Government protection of bank debts encourages banks to undertake excessive risk, particularly in response to adverse shocks to asset values. Reforms that would remove the destabilizing moral hazard consequences of government protection are considered, both from the perspective of economic desirability and political feasibility. Requiring banks to maintain a minimal proportion of subordinated debt finance, and restricting the means by which government recapitalization of insolvent banks occurs are the central features of promising reforms to the safety net.