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The Roots of Banking Crises: The Macroeconomic Context

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  • Michael Gavin
  • Ricardo Hausmann

Abstract

This paper discusses the ways in which macroeconomic developments can put stress on banks, and in extreme cases lead to banking crises. These macroeconomic causes of bank vulnerability and crisis have important implications for regulatory regimes, and for macroeconomic policy itself. Much of the discussion emphasizes the need for monetary policy to be set with an eye on the state of the domestic banking system as an occasionally important consideration. One purpose of this paper is to promote a discussion of how to do a better job of incorporating weak banking systems into macroeconomic policy management.

Suggested Citation

  • Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," IDB Publications (Working Papers) 6067, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:6067
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    File URL: http://publications.iadb.org/bitstream/handle/11319/6067/The%20Roots%20of%20Banking%20Crises%3a%20The%20Macroeconomic%20Context.pdf?sequence=1
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    References listed on IDEAS

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    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    2. Steven Riess Weisbrod & Liliana Rojas-Suárez, 1994. "Financial Market Fragilities in Latin America; From Banking Crisis Resolution to Current Policy Challenges," IMF Working Papers 94/117, International Monetary Fund.
    3. Armando Montenegro, 1983. "La crisis del sector financiero colombiano," Revista Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 2(4), pages 51-89, Diciembre.
    4. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    5. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    7. Guillermo A. Calvo & Pablo E. Guidotti, 1993. "On the Flexibility of Monetary Policy: The Case of the Optimal Inflation Tax," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 667-687.
    8. Mayer,Colin & Vives,Xavier (ed.), 1993. "Capital Markets and Financial Intermediation," Cambridge Books, Cambridge University Press, number 9780521443975, October.
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    Cited by:

    1. de la Torre, Augusto & Levy Yeyati, Eduardo & Schmukler, Sergio L, 2002. "Financial Globalization: Unequal Blessings," International Finance, Wiley Blackwell, vol. 5(3), pages 335-357, Winter.
    2. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
    3. H. Soral & Talan İşcan & Gregory Hebb, 2006. "Fraud, banking crisis, and regulatory enforcement: Evidence from micro-level transactions data," European Journal of Law and Economics, Springer, vol. 21(2), pages 179-197, April.
    4. Barry Eichengreen, 1998. "Exchange Rate Stability and Financial Stability," Open Economies Review, Springer, vol. 9(1), pages 569-608, January.
    5. Augusto de la Torre & Sergio Schmukler, 2007. "Emerging Capital Markets and Globalization: The Latin American Experience," IDB Publications (Books), Inter-American Development Bank, number 349, August.
    6. Mishkin,Frederic S., 2001. "Financial policies and the prevention of financial crises in emerging market economies," Policy Research Working Paper Series 2683, The World Bank.
    7. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2001. "Hedging and financial fragility in fixed exchange rate regimes," European Economic Review, Elsevier, vol. 45(7), pages 1151-1193.
    8. McKinnon, Ronald I. & Pill, Huw, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," World Development, Elsevier, vol. 26(7), pages 1267-1282, July.
    9. Barry Eichengreen and Carlos Arteta., 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research (CIDER) Working Papers C00-115, University of California at Berkeley.
    10. Jürgen Von Hagen & Tai-Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, August.
    11. Morris Goldstein & Graciela Kaminsky & Carmen Reinhart, 2017. "Methodology and Empirical Results," World Scientific Book Chapters,in: TRADE CURRENCIES AND FINANCE, chapter 11, pages 397-436 World Scientific Publishing Co. Pte. Ltd..
    12. Michael Gavin, 1997. "A Decade of Reform in Latin America: Has it Delivered Lower Volatility?," IDB Publications (Working Papers) 6206, Inter-American Development Bank.
    13. Schmidt Paul-Günther, 2001. "Ursachen systemischer Bankenkrisen: Erklärungsversuche, empirische Evidenz und wirtschaftspolitische Konsequenzen," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 52(1), pages 239-280, January.
    14. Gerardo della Paolera & Alan M. Taylor, 1999. "Internal Versus External Convertibility and Developing-Country FinancialCrises: Lessons from the Argentine Bank Bailout of the 1930's," NBER Working Papers 7386, National Bureau of Economic Research, Inc.
    15. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    16. Ramon Moreno, 1999. "Did a boom in money and credit precede east Asia's recent currency crisis?," Economic Review, Federal Reserve Bank of San Francisco, pages 23-41.
    17. Michael Gavin & Ricardo Hausmann & Ernesto Talvi, 1997. "Saving Behavior in Latin America: Overview and Policy Issues," IDB Publications (Working Papers) 6204, Inter-American Development Bank.
    18. Gerardo della Paolera & Alan M. Taylor, 2000. "Internal Versus External Convertibility and Developing-Country Financial," Macroeconomics 0004002, University Library of Munich, Germany.
    19. Rojas-Suarez, Liliana, 2002. "Can international capital standards strengthen banks in emerging markets?," Journal of Financial Transformation, Capco Institute, vol. 5, pages 51-63.
    20. Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Monitoring banking sector fragility : a multivariate logit approach with an application to the 1996-97 banking crises," Policy Research Working Paper Series 2085, The World Bank.
    21. Frederic S. Mishkin & Andrew Crockett & Michael P. Dooley & Montek S. Ahluwalia, 2003. "Financial Policies," NBER Chapters,in: Economic and Financial Crises in Emerging Market Economies, pages 93-154 National Bureau of Economic Research, Inc.
    22. Ramon Moreno, 1998. "Was there a boom in money and credit prior to East Asia's recent currency crisis?," Pacific Basin Working Paper Series 98-05, Federal Reserve Bank of San Francisco.
    23. Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
    24. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Working Paper Series WP04-1, Peterson Institute for International Economics.

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    Financial Sector; Economics; WP-318;

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