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Drivers of Systemic Banking Crises: The Role of Financial Account Structure and Financial Integration

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  • Rudiger Ahrend
  • Antoine Goujard

Abstract

type="main" xml:lang="en"> This paper examines whether the composition of a country's external liabilities and assets affects its risk of suffering financial turmoil. Using a panel of 184 developed and emerging economies from 1970 to 2009, and looking at the impact of financial account structure in normal times and in situations of bank balance-sheet contagion shocks, we find that the structure of the financial account indeed has an important influence on financial stability. A bias in external liabilities towards debt appears to increase strongly the risk of a systemic banking crisis. Moreover, certain forms of international financial integration, such as integration through international bank lending, amplify contagion shocks and increase crisis risk, particularly in the case of short-term bank debt.

Suggested Citation

  • Rudiger Ahrend & Antoine Goujard, 2014. "Drivers of Systemic Banking Crises: The Role of Financial Account Structure and Financial Integration," International Finance, Wiley Blackwell, vol. 17(2), pages 135-160, June.
  • Handle: RePEc:bla:intfin:v:17:y:2014:i:2:p:135-160
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    References listed on IDEAS

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    1. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
    2. Philip R. Lane & Jay C. Shambaugh, 2010. "Financial Exchange Rates and International Currency Exposures," American Economic Review, American Economic Association, vol. 100(1), pages 518-540, March.
    3. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
    4. André Faria & Philip R. Lane & Paolo Mauro & Gian Maria Milesi-Ferretti, 2007. "The Shifting Composition of External Liabilities," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 480-490, 04-05.
    5. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    6. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
    7. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
    8. Natalia T. Tamirisa & R. B. Johnston, 1998. "Why Do Countries Use Capital Controls?," IMF Working Papers 98/181, International Monetary Fund.
    9. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, vol. 22(5), pages 875-895, November.
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    Cited by:

    1. Douglas Sutherland & Peter Hoeller & Rossana Merola & Volker Ziemann, 2012. "Debt and Macroeconomic Stability," OECD Economics Department Working Papers 1003, OECD Publishing.
    2. Antonio Cabrales & Piero Gottardi & Fernando Vega-Redondo, 2017. "Risk Sharing and Contagion in Networks," Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 3086-3127.
    3. Bicu, Andreea & Candelon, Bertrand, 2013. "On the importance of indirect banking vulnerabilities in the Eurozone," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5007-5024.
    4. repec:bla:reviec:v:26:y:2018:i:1:p:96-116 is not listed on IDEAS
    5. ATI Abdessatar & BEN JAZIA Rachida, 2013. "Institutional Quality And Financial Stress: Experience From Emerging Country," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 8(3), pages 5-20, December.
    6. Cabrales, Antonio; Gale, Douglas; Gottardi, Piero, 2015. "Financial Contagion in Networks," Economics Working Papers ECO2015/01, European University Institute.
    7. Julian Caballero, 2012. "Banking Crises and Financial Integration," Research Department Publications 4816, Inter-American Development Bank, Research Department.
    8. Rudiger Ahrend & Cyrille Schwellnus, 2012. "International Capital Mobility and Financial Fragility - Part 4. Which Structural Policies Stabilise Capital Flows When Investors Suddenly Change Their Mind?: Evidence from Bilateral Bank Data," OECD Economics Department Working Papers 967, OECD Publishing.
    9. Nabila Boukef Jlassi & Helmi Hamdi & Joseph P. Joyce, 2018. "External liabilities, domestic institutions and banking crises in developing economies," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 96-116, February.
    10. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 3. How Do Structural Policies Affect Financial Crisis Risk?: Evidence from Past Crises Across OECD and Emerging Economies," OECD Economics Department Working Papers 966, OECD Publishing.
    11. Brahim Gaies & Stéphane Goutte & Khaled Guesmi, 2018. "Banking crises in developing countries–What crucial role of exchange rate stability and external liabilities?," Post-Print halshs-02148916, HAL.
    12. Rudiger Ahrend & Antoine Goujard & Cyrille Schwellnus, 2012. "International Capital Mobility: Which Structural Policies Reduce Financial Fragility?," OECD Economic Policy Papers 2, OECD Publishing.
    13. repec:kap:iecepo:v:15:y:2018:i:2:d:10.1007_s10368-017-0406-2 is not listed on IDEAS
    14. Joseph P. Joyce, 2018. "External balance sheets as countercyclical crisis buffers," International Economics and Economic Policy, Springer, vol. 15(2), pages 305-329, April.

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