Determinants of Banking Crisis: A Microeconometric Analysis

Banking crisis is one of the obstacle for the economic stability. The smooth operation of the banking and finance markets should be taken into consideration carefully for both politicians and the foreign investors. The main aim of this study to analysis the main determinants of banking crisis. For this reason, World Bank’s Global Financial Development database is used for to estimate single variable logit models. In this manner, it is tried to find the variables which accelerate the probability of banking crisis and the variables which decelerate it. In sum, it is found that banking crisis is influenced by twenty seven variables positively and thirteen variables negatively. The variables which increases the probability of banking crisis are: bank cost to income ratio, bank credit to bank deposits, bank deposits to GDP, bank lending-deposit spread, bank noninterest income to total income, bank nonperforming loans to gross loans, bank overhead costs to total assets, central bank assets to GDP, deposit money banks' assets to GDP, domestic credit to private sector (% of GDP), financial system deposits to GDP, GDP, GDP per capita, GNI, outstanding total international debt securities / GDP, life insurance premium volume to GDP, liquid liabilities in millions USD, liquid liabilities to GDP, nonbank financial institutions’ assets to GDP, nonlife insurance premium volume to GDP, outstanding international private debt securities to GDP, outstanding international public debt securities to GDP, private credit by deposit money banks and other financial institutions to GDP, stock market total value traded to GDP, stock market turnover ratio, stock price volatility and, total factoring volume to GDP. The variables which mitigate the probability of banking crisis are: 5-bank asset concentration, bank capital to total assets, bank concentration, bank net interest margin, bank return on assets (after tax), bank return on equity (after tax), bank Z-score, foreign bank assets among total bank assets, Lerner index, liquid assets to deposits and short term funding, number of listed companies per 1,000,000 people, remittance inflows to GDP and, stock market capitalization to GDP.