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Good governance problems and recent financial crises in some EU countries

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  • Gamberger, Dragan
  • Smuc, Tomislav
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    Abstract

    This study examines 147 banking crises in the period of 1976-2011 documented by the International Monetary Fund. The countries affected by crises are analysed in respect of publicly available World Bank indicators in the periods of three years before the crises. Machine learning methodology for subgroup discovery is used for the analysis. It enabled identification of five subsets of crises. Two of them are identified as especially useful for the characterization of EU countries affected by the banking crises in the year 2008. Fast growing credit activity is a characteristic for the first subgroup while socioeconomic problems recognized by non-increasing quality of public health are decisive for the second subgroup. Comparative analysis of the EU countries included into the second subgroup and the EU countries affected by the banking crises but not included into this subgroup demonstrated statistically significant differences in respect of World Bank good governance indicator values for the period before the crisis. Control of corruption, rule of law, and government effectiveness are the indicators that are statistically different for these sets of countries. The result is fully in accordance with the Francis's model connecting governance indicators and financial fragility. The significance of the result is in the segmentation of the corpus of countries with banking crises and recognition of connections between banking crises, socioeconomic problems, and governance effectiveness in some EU countries. The conclusions of the study might be useful for the policy makers in stressing that future banking crises prevention should also focus on governance effectiveness, more strict law implementation and especially on measures against corruption. --

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2013-39.

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    Date of creation: 2013
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    Handle: RePEc:zbw:ifwedp:201339

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    Keywords: banking crises; World Bank indicators; subgroup discovery; good governance;

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    1. Gianni De Nicolò & Marcella Lucchetta, 2011. "Systemic Risks and the Macroeconomy," NBER Chapters, in: Quantifying Systemic Risk, pages 113-148 National Bureau of Economic Research, Inc.
    2. Michael Francis, 2003. "Governance and Financial Fragility: Evidence from a Cross-Section of Countries," Working Papers 03-34, Bank of Canada.
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