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Banking Crises and Crisis Dating: Theory and Evidence

Author/Editor: Boyd, John H. | De Nicoló, Gianni | Loukoianova, Elena
Authorized for Distribution: July 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,032KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Many empirical studies of banking crises have employed "banking crisis" (BC) indicators constructedusing primarily information on government actions undertaken in response to bank distress. Weformulate a simple theoretical model of a banking industry which we use to identify and constructtheory-based measures of systemic bank shocks (SBS). Using both country-level and firm-level samples, we show that SBS indicators consistently predict BC indicators based on four major BCseries that have appeared in the literature. Therefore, BC indicatorsactually measure lagged government responses to systemic bank shocks, rather than the occurrence of crises per se. We re-examine the separate impact of macroeconomic factors, bank market structure, deposit insurance, andexternal shocks on the probability of a systemic bank shocks and on the probability of governmentresponses to bank distress. The impact of these variables on the likelihood of a government responseto bank distress is totally different from that on the likelihood of a systemic bank shock.Disentangling the effects of systemic bank shocks and government responses turns out to be crucial inunderstanding the roots of bank fragility. Many findings of a large empirical literature need to be re-assessed and/or re-interpreted.
 
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Series: Working Paper No. 09/141
Subject(s): Banking crisis | Banking sector | Banks | Cross country analysis | Deposit insurance | Economic models | External shocks | Financial crisis
Author's keyword(s): Banking crises | systemic bank shocks
 
English  
    Published:   July 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009141   Pages:   50
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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