Two Great Banking Crises and Their Economic Impact Compared: Spain 1976/1977 and 2008

Abstract

The 1976/1977 crisis was the most severe in Spanish history, but the losses associated with the 2008 crisis are huge. This paper compares these two great banking crises and identifies the main parallels and differences between them. Is the current crisis as severe as that of 1976? What is the impact on the banking and financial sectors? We show that the 1976 crisis is being surpassed by the 2008 crisis in terms of the decline in GDP, industrial production and unemployment, and that these two events have had at least a similar impact in terms of output gap and output loss. Finally, the financial impact measured by different financial indicators confirms the greater severity of the 2008 crisis.

Capital Flow Bonanzas as a Fundamental Ingredient in Spain's Financial Crises, 1850-2015

“…To this end, we select some of the most characteristic crises of each period, with different monetary policy regimes and financial structures, as shown in Tables 3 and 4. We survey the main assessments of the Spanish literature on financial crises, contemporary views and some recent empirical studies (Betrán, Martín-Aceña and Pons 2012, Betrán and Pons 2017, Betrán and Pons 2019. As representative crises of the pre-1913 period, we describe two of the most severe in terms of output loss and repercussions on the financial sector and the economy: 1866 and 1882.…”

“…There are certain parallels between the two crises that occurred in the second half of the twentieth century in terms of their origin (Betrán and Pons 2017). In both cases, Spain accumulated high imbalances (current account deficits and public deficits in 1976 and current account deficits and high levels of private debt in 2008) after a period of economic growth.…”

“…From the mid-1990s to 2007, Spain experienced a period of rapid growth, benefitting from the Economic and Monetary Union convergence process in the 1990s and the adoption of the euro in 1999 a stable macroeconomic framework (with low interest rates and an adjusted exchange rate) and favourable financial conditions. This economic growth was sustained by foreign private debt and strong current account deficits (Maudos 2012, Betrán andPons 2017). In this context, a number of bubbles were created, such as the tech bubble from 1997 to 2001 or the construction bubble that started in 1985 but grew substantially from 1996 to 2008.…”

“…Depth or GDP loss defined as cumulative loss of output estimated by summing the differences between trend growth before the crisis and output growth until the time when annual output growth has returned to its trend. Source:Betrán, Martín Aceña and Pons (2012),Betrán and Pons (2017),Comín (2012), Martínez and Nogues (2014) andReinhart and Rogoff (2010)…”

The consolidation of public banking in Spain: from the 1970s crisis to the 2008 crisis

“…2001). On the other hand, the 2008–13 crisis can be considered more severe than the 1977 crisis in macroeconomic terms, though not in banking terms (Jimeno and Santos 2014; Betrán and Pons 2017). However, little attention has been paid to the behaviour of public credit during these crises 2…”