The determinants of banking crises : evidence from industrial and developing countries
AbstractIn the 1980s and 1990s several countries experienced banking crises. The authors try to identify features of the economic environment that tend to breed problems in the banking sector. They do so by economically estimating the probability of a systemic crisis, applying a multivariate logic model to data from a large panel of countries, both industrial and developing, for the period 1980-94. Included in the panel as controls are countries that never experienced banking problems. The authors find that crises tend to occur in a weak macroeconomic environment characterized by slow GDP growth and high inflation. When these effects are controlled for, neither the rate of currency depreciation nor the fiscal deficit are significant. Also associated with a high probability of crisis are vulnerability to sudden capital outflows, low liquidity in the banking sector, a high share of credit to the private sector, and past credit growth. Another factor significantly (and robustly) associated with increased vulnerability in the banking sector is the presence of explicit deposit insurance, suggesting that moral hazard has played a major role. Finally, countries with weak institutions (as measured by a"law and order"index) are more likely to experience crises.
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 The World Bank in its series Policy Research Working Paper Series with number 1828.
Date of creation: 30 Sep 1997
Date of revision:
Labor Policies; Payment Systems&Infrastructure; Financial Intermediation; Banks&Banking Reform; Financial Crisis Management&Restructuring; Financial Economics; Banks&Banking Reform; Financial Crisis Management&Restructuring; Financial Intermediation; Insurance&Risk Mitigation;
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.:
- May Y. Khamis, 1996. "Credit and Exchange Rate-Based Stabilization," IMF Working Papers 96/51, International Monetary Fund.
- Huw Pill & Mahmood Pradhan, 1995. "Financial Indicators and Financial Change in Africa and Asia," IMF Working Papers 95/123, International Monetary Fund.
- Garber, Peter M, 1996. "Managing Risks to Financial Markets from Volatile Capital Flows: The Role of Prudential Regulation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(3), pages 183-95, July.
- Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 3(1), pages 2-50, October.
- Vicente Galbis, 1993. "High Real Interest Rates Under Financial Liberalization," IMF Working Papers 93/7, International Monetary Fund.
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999.
"The Twin Crises: The Causes of Banking and Balance-of-Payments Problems,"
American Economic Review, American Economic Association,
American Economic Association, vol. 89(3), pages 473-500, June.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 544, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994.
"The Capital Inflows Problem: Concepts And Issues,"
Contemporary Economic Policy,
Western Economic Association International, vol. 12(3), pages 54-66, 07.
- George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
- Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
- Joseph E. Stiglitz, 1972. "Some Aspects of the Pure Theory of Corporate Finance: Bankruptcies and Take-Overs," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 3(2), pages 458-482, Autumn.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy, University of Chicago Press,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Brenda GonzÃ¡lez-Hermosillo, 1996. "Banking Sector Fragility and Systemic Sources of Fragility," IMF Working Papers 96/12, International Monetary Fund.
- Calvo, Guillermo A, 1996.
"Capital Flows and Macroeconomic Management: Tequila Lessons,"
International Journal of Finance & Economics, John Wiley & Sons, Ltd.,
John Wiley & Sons, Ltd., vol. 1(3), pages 207-23, July.
- Guillermo A. Calvo, 1996. "Capital flows and macroeconomic management: tequila lessons," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 96-02, Federal Reserve Bank of San Francisco.
- Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996.
"Contagious Currency Crises,"
NBER Working Papers
5681, National Bureau of Economic Research, Inc.
- Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1453, C.E.P.R. Discussion Papers.
- Velasco, Andres, 1987. "Financial crises and balance of payments crises : A simple model of the southern cone experience," Journal of Development Economics, Elsevier, Elsevier, vol. 27(1-2), pages 263-283, October.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.