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Financial development in the aftermath of banking crises

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  • Everaert, Gerdie
  • Pozzi, Lorenzo

Abstract

This paper examines the dynamic impact of systemic banking crises on financial development. Causal effects are identified using a propensity-score-based method for time series and panel data. Specifically, to address the non-random nature of banking crisis onsets, we apply inverse propensity score weighting to create a quasi-random distribution of crisis and non-crisis episodes. The appropriate weights are derived from a banking crisis prediction model that accounts for financial development in the run-up to crises. Using data on banking crises and a comprehensive set of financial development indicators for 174 countries from 1980 to 2019, we present novel evidence demonstrating that banking crisis shocks have a persistent negative effect on financial development. This finding holds across multiple dimensions of financial development.

Suggested Citation

  • Everaert, Gerdie & Pozzi, Lorenzo, 2025. "Financial development in the aftermath of banking crises," Journal of International Money and Finance, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:jimfin:v:157:y:2025:i:c:s0261560625001305
    DOI: 10.1016/j.jimonfin.2025.103395
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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