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Banking Crises and Crisis Dating

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Author Info

  • Elena Loukoianova
  • Gianni De Nicoló
  • John H. Boyd

Abstract

Many empirical studies of banking crises have employed "banking crisis" (BC) indicators constructedusing primarily information on government actions undertaken in response to bank distress. Weformulate a simple theoretical model of a banking industry which we use to identify and constructtheory-based measures of systemic bank shocks (SBS). Using both country-level and firm-level samples, we show that SBS indicators consistently predict BC indicators based on four major BCseries that have appeared in the literature. Therefore, BC indicatorsactually measure lagged government responses to systemic bank shocks, rather than the occurrence of crises per se. We re-examine the separate impact of macroeconomic factors, bank market structure, deposit insurance, andexternal shocks on the probability of a systemic bank shocks and on the probability of governmentresponses to bank distress. The impact of these variables on the likelihood of a government responseto bank distress is totally different from that on the likelihood of a systemic bank shock.Disentangling the effects of systemic bank shocks and government responses turns out to be crucial inunderstanding the roots of bank fragility. Many findings of a large empirical literature need to be re-assessed and/or re-interpreted.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/141.

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Length: 50
Date of creation: 01 Jul 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/141

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Related research

Keywords: Banking crisis; Banking sector; Banks; Deposit insurance; Economic models; External shocks; banking; banking crises; banking distress; bank credit; bank distress; bank fragility; currency crises; banking systems; currency crisis; banking industry; foreign exchange; banking ? crises; bank market; banking system; bank insolvency; bank profits; crisis country; financial crises; currency crisis indicators; bank regulation; bank competition; bank deposits; bank failures; systemic risk; bank regulators; bank closures; bank loans; bank insolvencies; bank data; bank risk; crisis episodes; bank failure; bank risk taking; bank capital; systemic ? banking crises; financial crisis; bank run; bank runs; systemic banking crises; bank ownership; banking firm; bank soundness; banks deposit insurance; cross-country experience; credit booms; bank interventions; crisis episode; crisis problem; banking system stability; borderline financial crises; banking model; banking theory; systemic crisis; market banking crises; financial distress; bank creditors; bank problem; causes ? of banking crises; risk of bank failure; financial risk; federal deposit insurance; bank accounting; bank size; deposit guarantees; major banking crisis; systemic financial crises; insurance premium; bank profitability;

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers 5644, C.E.P.R. Discussion Papers.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  4. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  5. Gianni De Nicoló & Elena Loukoianova, 2007. "Bank Ownership, Market Structure and Risk," IMF Working Papers 07/215, International Monetary Fund.
  6. Eichengreen, Barry & Rose, Andrew K, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," CEPR Discussion Papers 1828, C.E.P.R. Discussion Papers.
  7. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-44, May.
  8. 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.
  9. Romain Ranciere & Aaron Tornell & Frank Westermann, 2002. "Systemic Crises and Growth," Working Papers 190, Barcelona Graduate School of Economics.
  10. Boyd, John H. & Chang, Chun & Smith, Bruce D., 2002. "Deposit insurance: a reconsideration," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1235-1260, September.
  11. Bordo, Michael D., 2007. "Growing up to Financial Stability," Economics Discussion Papers 2007-33, Kiel Institute for the World Economy.
  12. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
  13. Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
  14. Jürgen Von Hagen & Tai-Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, 08.
  15. John Boyd & Chun Chang & Bruce Smith, 2004. "Deposit insurance and bank regulation in a monetary economy: a general equilibrium exposition," Economic Theory, Springer, vol. 24(4), pages 741-767, November.
  16. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
  17. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
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