The Australian Bank Crashes of the 1890s Revisited

In the early 1890s, financial crises occurred in many countries, most of which were connected to international capital flows. Australia, a major importer of capital, had difficulty borrowing after the Baring crisis of 1890. This article argues that local factors shaped the consequences of the banking crash in early 1893. A fortuitous legislative change averted a calamity by allowing for reconstruction rather than liquidation of banks, economic activity was depressed as banks became more conservative lenders, and the reconstructions reduced the wealth of domestic bank creditors and shareholders. The article concludes by noting that there was no targeted policy response in the short or medium term to prevent a recurrence of such an event.