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Modern Recipes for Financial Crises James McAndrews, for presentation at the University of Iowa December 4, 2015 The views expressed do not necessarily represent the views of the Federal Reserve Bank of New York or of the Federal Reserve System. Banking Crisis Outcomes Median Outcomes of Banking Crises in Advanced Economies, 1970-2011 In Percent of GDP Output Loss 32.9 Increase in Debt 21.4 Fiscal Costs In Years Duration 3.8 3 Source: Laeven & Valencia (2012) 2 Procyclicality of Leverage Source: Adrian & Shin (2014), updated by the author 3 Leverage Management and VaR Source: Adrian & Shin (2014) 4 Collateralized Private Money: Boom and Bust 3500 Bil. $ 3000 2500 2000 1500 1000 500 0 1980 1985 1990 1995 2000 2005 2010 2015 Directly Placed Commercial Paper, ABS Issuers Security Repurchase Agreements, Brokers and Dealers Source: Federal Reserve Board and Haver Analytics 5 Impact of Money Supply and Crises Source: Krishnamurthy & Vissing-Jorgensen (2015) 6