Growth expectations and banking system fragility in developing economies
AbstractThe likelihood of a banking crisis appears to be higher in fast-developing countries. An explanation is provided in a Diamond and Dybvig framework, where banks are vehicles of consumption-smoothing, offering insurance against shocks to the consumption path of consumers. The theoretical model shows that the higher consumer growth expectations, the higher the optimal level of illiquidity insurance — even if it implies higher exposure bank runs. Empirical evidence supports this result and suggests that the effect of deposit interest rates on the probability of crisis is stronger after a period of high, uniterrupted growth. Policies of providing bail-outs or deposit insurance are demonstrated to be efficient even when they increase the fragility of the banking system.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 13/2005.
Length: 32 pages
Date of creation: 07 Nov 2005
Date of revision:
Contact details of provider:
Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
Web page: http://www.suomenpankki.fi/bofit_en/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-07 (All new papers)
- NEP-BAN-2006-10-07 (Banking)
- NEP-DEV-2006-10-07 (Development)
- NEP-FDG-2006-10-07 (Financial Development & Growth)
- NEP-FMK-2006-10-07 (Financial Markets)
- NEP-MAC-2006-10-07 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles W. Calomiris & Gary Gorton, .
"The Origins of Banking Panics: Models, Facts, and Bank Regulation,"
Rodney L. White Center for Financial Research Working Papers
11-90, Wharton School Rodney L. White Center for Financial Research.
- Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174 National Bureau of Economic Research, Inc.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Edward J. Green & Ping Lin, 2000. "Diamond and Dybvig's classic theory of financial intermediation : what's missing?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-13.
- Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
- Acemoglu, Daron & Zilibotti, Fabrizio, 1997.
"Was Prometheus Unbound by Chance? Risk, Diversification, and Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 105(4), pages 709-51, August.
- Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
- Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
- Gary Gorton & Andrew Winton, 2002.
Center for Financial Institutions Working Papers
02-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Demirguc-Kent, Asli & Detragiache, Enrica, 1998.
"Financial liberalization and financial fragility,"
Policy Research Working Paper Series
1917, The World Bank.
- Gorton, Gary, 1988.
"Banking Panics and Business Cycles,"
Oxford Economic Papers,
Oxford University Press, vol. 40(4), pages 751-81, December.
- Martin Browning & Thomas F. Crossley, 2001.
"The Life-Cycle Model of Consumption and Saving,"
Journal of Economic Perspectives,
American Economic Association, vol. 15(3), pages 3-22, Summer.
- Martin Browning & Thomas F. Crossley, 2001. "The lifecycle model of consumption and saving," IFS Working Papers W01/15, Institute for Fiscal Studies.
- Martin Browning & Thomas F. Crossley, 2000. "The Life Cycle Model of Consumption and Saving," Social and Economic Dimensions of an Aging Population Research Papers 28, McMaster University.
- Asli Demirguc-Kunt & Enrica Detragiache, 2000.
"Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation,"
Econometric Society World Congress 2000 Contributed Papers
1751, Econometric Society.
- Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
- Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Does deposit insurance increase banking system stability ? An empirical investigation," Policy Research Working Paper Series 2247, The World Bank.
- Franklin Allen & Douglas Gale, 1976.
"Optimal Financial Crises,"
Center for Financial Institutions Working Papers
97-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June.
- Eichengreen, Barry & Arteta, Carlos, 2000.
"Banking Crises in Emerging Markets: Presumptions and Evidence,"
Center for International and Development Economics Research, Working Paper Series
qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen & Carlos Arteta, 2001. "Banking Crises in Emerging Markets: Presumptions and Evidence," Macroeconomics 0012012, EconWPA.
- Barry Eichengreen and Carlos Arteta., 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research (CIDER) Working Papers C00-115, University of California at Berkeley.
- Roberto Chang & Andres Velasco, 1998.
"Financial crises in emerging markets: a canonical model,"
98-10, Federal Reserve Bank of Atlanta.
- Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers 98-21, C.V. Starr Center for Applied Economics, New York University.
- Asli DemirgÃ¼Ã§-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
- Ennis, Huberto M. & Keister, Todd, 2003.
"Economic growth, liquidity, and bank runs,"
Journal of Economic Theory,
Elsevier, vol. 109(2), pages 220-245, April.
- Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Päivi Määttä).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.