This chapter takes a look at some previous banking crises during the past century, comparing them with the situation today. It examines the US banking panic of 1907, the problems of bank lending to Latin America in the early 1980s and two crises that emerged at about the same time in the early 1990s – the deep and protracted problems of Japanese banking and the banking crises in Scandinavia. It then looks at the widespread banking and financial market problems during the Asian crisis of 1997 and finally at the collapse of the Long-Term Capital Management (LTCM) hedge fund that followed in 1998.

This is a selective and highly condensed analysis of these episodes. A full survey of previous banking crises would go well beyond the compass of a single book chapter, but it is possible to pull out some common themes. It can be seen that there is ‘no smoke without fire’. All these banking crises had their origins, like those of 2007–8, in a macroeconomic and credit boom and bust, accompanied by inadequate controls and risk management by at least some banks. Also all these crises arose following a period of financial innovation and deregulation, encouraging weaknesses of control and supervision.

It is also clear that in these crises panic and withdrawal of shortterm funding played a significant role. This is most apparent in the panic of 1907 and in the Asian crisis of 1997 and the collapse of LTCM, but it is also present in other cases, for example Finland and Sweden, where the threat of withdrawal of short-term wholesale borrowing also worsened the situation.