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Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now

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  • Roy, Saktinil
  • Kemme, David M.

Abstract

We examine similarities in the run-up to banking crises using two criteria for their predictability: i) the percentage of a specified number of years prior to a crisis correctly called; and ii) the percentage of true alarms of total alarms for a crisis. Using panel logit models we find that a banking crisis will be sparked by the collapse of a real asset bubble. While such bubbles are associated with popular stories of a new era and an increasingly deregulated financial system, in most cases, this would occur even in the absence of sustained surges of capital inflow, accumulation of public debt, low interest rate policies, or structural shocks. We also find that an increase in income inequality inflated the recent housing bubble.

Suggested Citation

  • Roy, Saktinil & Kemme, David M., 2012. "Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 270-294.
    • Handle: RePEc:eee:reveco:v:24:y:2012:i:c:p:270-294
    DOI: 10.1016/j.iref.2012.04.001
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    More about this item

    Keywords

    Banking crisis; Similarity; Logit;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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