## The Anatomy of Banking Crises

_IMF Working Papers, April 1, 2008_

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## Bibliographic details
- Authors: Rupa Duttagupta, Paul Cashin
- Published: April 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869545.001

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### Methodology
- Model: Binary Classification Tree (BCT) model.
- Sample: 50 emerging market and developing countries during 1990-2005.
- Purpose: Identify key indicators and their threshold values at which vulnerability to banking crisis increases.

### Key findings
- The BCT identifies three crisis-prone conditions:
  - (i) very high inflation.
  - (ii) highly dollarized bank deposits combined with nominal depreciation or low liquidity.
  - (iii) low bank profitability.
- Interpretation: 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.

### Robustness and validation
- Results remain valid under alternative robustness checks (no numerical alterations provided in the source text).

### Policy implications and monitoring
- Monitoring frameworks should track:
  - inflation levels, including episodes of very high inflation;
  - liability dollarization measures (highly dollarized bank deposits) together with exchange rate pressures (nominal depreciation) and liquidity indicators;
  - bank profitability metrics to detect low profitability regimes.
- Use of BCT-based indicator thresholds can strengthen early-warning systems for banking system vulnerabilities.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-anatomy-of-banking-crises-21894_