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The Anatomy of Banking Crises

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  • Rupa Duttagupta
  • Paul Cashin

Abstract

This paper uses a Binary Classification Tree (BCT) model to analyze banking crises in 50 emerging market and developing countries during 1990-2005. The BCT identifies key indicators and their threshold values at which vulnerability to banking crisis increases. The three conditions identified as crisis-prone-(i) very high inflation, (ii) highly dollarized bank deposits combined with nominal depreciation or low liquidity, and (iii) low bank profitability-highlight that foreign currency risk, poor financial soundness, and macroeconomic instability are key vulnerabilities triggering banking crises. The main results survive under alternative robustness checks, confirming the importance of the BCT approach for monitoring banking system vulnerabilities.

Suggested Citation

  • Rupa Duttagupta & Paul Cashin, 2008. "The Anatomy of Banking Crises," IMF Working Papers 08/93, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/93
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    Cited by:

    1. Dudin, Mikhail & Sekerin, Vladimir & Smirnova, Olga & Frolova, Evgenia & Sepiashvili, Ekaterina, 2014. "State Anti-Crisis Management of Banking Sector: Looking for Optimization Ways and Contemporary Development Trends," Working Papers dudnov, Russian Presidential Academy of National Economy and Public Administration.
    2. Rousseau, Peter L. & Yilmazkuday, Hakan, 2009. "Inflation, financial development, and growth: A trilateral analysis," Economic Systems, Elsevier, vol. 33(4), pages 310-324, December.
    3. Jing, Zhongbo & de Haan, Jakob & Jacobs, Jan & Yang, Haizhen, 2015. "Identifying banking crises using money market pressure: New evidence for a large set of countries," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 1-20.
    4. Rasool Shafieyoun & Farzad Karimi & Mohsen Babaei, 2014. "Investigating the Impact of Technical and Market Indicators on Collecting Isfahan's Sepah Bank Debts," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(7), pages 149-163, July.
    5. Caggiano, Giovanni & Calice, Pietro & Leonida, Leone, 2014. "Early warning systems and systemic banking crises in low income countries: A multinomial logit approach," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 258-269.
    6. Barrell, Ray & Davis, E. Philip & Karim, Dilruba & Liadze, Iana, 2010. "Bank regulation, property prices and early warning systems for banking crises in OECD countries," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2255-2264, September.
    7. Dan OLTEANU, 2011. "A Survey On The Drivers And Mechanisms Of Financial Crises," Romanian Journal of Economics, Institute of National Economy, vol. 33(2(bis)(42), pages 73-100, December.
    8. Christofides, Charis & Eicher, Theo S. & Papageorgiou, Chris, 2016. "Did established Early Warning Signals predict the 2008 crises?," European Economic Review, Elsevier, vol. 81(C), pages 103-114.
    9. repec:onb:oenbwp:y:2008:i:16:b:1 is not listed on IDEAS
    10. Peter L. Rousseau & Hakan Yilmazkuday, 2009. "Inflation, Finance, and Growth: A Trilateral Analysis," Vanderbilt University Department of Economics Working Papers 0916, Vanderbilt University Department of Economics.
    11. Casu, Barbara & Clare, Andrew & Saleh, Nashwa, 2011. "Towards a new model for early warning signals for systemic financial fragility and near crises: an application to OECD countries," MPRA Paper 37043, University Library of Munich, Germany.
    12. Thangjam Rajeshwar Singh, 2011. "An ordered probit model of an early warning system for predicting financial crisis in India," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Initiatives to address data gaps revealed by the financial crisis", Basel, 25-26 August 2010, volume 34, pages 185-201 Bank for International Settlements.
    13. Radu Muntean, 2009. "Early Warning Models for Banking Supervision in Romania," Advances in Economic and Financial Research - DOFIN Working Paper Series 39, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
    14. repec:kap:compec:v:52:y:2018:i:1:d:10.1007_s10614-017-9676-6 is not listed on IDEAS
    15. Agénor, Pierre-Richard & Zilberman, Roy, 2015. "Loan Loss Provisioning Rules, Procyclicality, and Financial Volatility," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 301-315.
    16. Johannes Hauptmann & Anja Hoppenkamps & Aleksey Min & Franz Ramsauer & Rudi Zagst, 2014. "Forecasting market turbulence using regime-switching models," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(2), pages 139-164, May.
    17. Rupa Duttagupta & Montfort Mlachila, 2008. "What is Really Good for Long-Term Growth? Lessons from a Binary Classification Tree (BCT) Approach," IMF Working Papers 08/263, International Monetary Fund.
    18. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung & Conseil d'Analyse Écon (ed.), 2010. "Monitoring economic performance, quality of life and sustainability. Joint report as requested by the Franco-German Ministerial Council," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75366.
    19. Alexandru Monahov, 2015. "The Effects of Prudential Supervision on Bank Resiliency and Profits in a Multi-Agent Setting," GREDEG Working Papers 2015-24, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    20. Karim, Dilruba & Liadze, Iana & Barrell, Ray & Davis, E. Philip, 2013. "Off-balance sheet exposures and banking crises in OECD countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 673-681.
    21. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung & Conseil d'Analyse Écon (ed.), 2010. "Evaluer la performance économique, le bien-être et la soutenabilité. Rapport du Conseil d'analyse économique et du Conseil allemand des experts en économie," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75369.

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