ARE BANKING CRISES FREE-MARKET PHENOMENA

The conventional view of banking crises sees them as an inherent probl em of fractional-reserve banking systems. According to this view, gove rnment regulation in the form of an alert central bank (acting as a '' lender of last resort''), or deposit insurance, or both is needed to k eep isolated bank failures from generating systemwide panic. But this view does not mesh with historical experience, which points to governm ent regulation itself as the most likely cause of banking crises.