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Real effects of banking crises: a survey of the literature

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  • Luisa Carpinelli

    () (Banca d'Italia)

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    Abstract

    The literature is unanimous in highlighting that banking crises have a negative impact on GDP, usually more pronounced in developing economies. The magnitude of the losses is more controversial: the quantitative results of studies on the repercussions of banking crises on economic activity, in fact, are quite uneven. Estimates on the correlation between financial variables and GDP indicate output losses generally greater than ten percentage points of pre-crisis output and exhibit high variability, as a result of the large number of different methodologies adopted to measure real costs. The very high values thus obtained often reflect a problem in identifying the causal nexus between banking crises and real output fluctuations. The most recent literature, which examines the relevance of specific channels of transmission based on individual data, tends to produce a lower estimate of the direct causal effects of banking crises, which are rarely found to cause an output loss exceeding 2 per cent.

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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 55.

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    Date of creation: Sep 2009
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    Handle: RePEc:bdi:opques:qef_55_09

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    Keywords: banking crises; real effects; transmission channesl; procyclicality;

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    1. Kroszner, Randall S. & Laeven, Luc & Klingebiel, Daniela, 2007. "Banking crises, financial dependence, and growth," Journal of Financial Economics, Elsevier, vol. 84(1), pages 187-228, April.
    2. Dell'Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram, 2008. "The real effect of banking crises," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 89-112, January.
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    7. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
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    15. Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
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    18. Sandra Steindl & et al., 2009. "Austria's Economy in 2008: International Economic and Financial Crisis Distresses the Domestic Economy," WIFO Monatsberichte (monthly reports), WIFO, vol. 82(4), pages 261-318, April.
    19. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
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