The chairman of the Fed, Ben Bernanke informed Washington earlier this month that “the recession should now technically be over”, he added that the US economy would stay weak for a protracted period. Work done on September 22nd by the International Monetary Fund (IMF) who have been analysing the fallout of the last 88 banking crises that have occurred over the last 40 years, agrees with Bernanke's cautious rhetoric. While the majority of the discussion looks at the pain from unemployment and closed shops, the analysis points to the fact that the effects of the downturn will continue for considerable time to come.
Banking issues have the effect of large drops in Gross Domestic Product (GDP): the IMF discovers that output per capita falls sharply for three years after a banking crisis. Recovery takes a long time, even after pre-crisis growth. Generally 7 years after a banking crisis has finished output per head is ten percent less than it would have been if a crash didn´t happen. The IMF also discovered that recessions that are connected with banking crises result in output declines that are approximately 3 times as big in the medium period as those that follow any kind of currency crises.