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IMF Lending and Banking Crises

  • Luca Papi

    ()

    (Universit… Politecnica delle Marche, MoFiR)

  • Andrea Filippo Presbitero

    ()

    (Universit… Politecnica delle Marche, MoFiR)

  • Alberto Zazzaro

    ()

    (Universit… Politecnica delle Marche, MoFiR)

In this paper we look at the effect of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1965-2010. The endogeneity of the Fund intervention is addressed by adopting an instrumental variable (IV) strategy, in which the degree of political similarity between IMF borrowers and the G-7 is taken as an instrument for the likelihood of a country signing an IMF lending arrangement. Controlling for the standard determinants of banking crises, the IV estimates suggest that previous IMF borrowers are significantly less likely to experience a banking crisis. We also provide evidence suggesting that compliance with conditionality matters, consistent with the importance of IMF-supported financial reform, and that the positive effect of the Fund intervention on banking sector stability works through a direct liquidity provision effect.

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Paper provided by Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences in its series Mo.Fi.R. Working Papers with number 80.

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Length: 34
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:anc:wmofir:80
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