The Anatomy of Banking Crises

39 Pages Posted: 1 Jul 2008

See all articles by Paul Anthony Cashin

Paul Anthony Cashin

International Monetary Fund (IMF)

Rupa Duttagupta

International Monetary Fund (IMF)

Date Written: April 2008

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.

Keywords: Working Paper

Suggested Citation

Cashin, Paul Anthony and Duttagupta, Rupa, The Anatomy of Banking Crises (April 2008). IMF Working Paper No. 08/93, Available at SSRN: https://ssrn.com/abstract=1153757

Paul Anthony Cashin (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Rupa Duttagupta

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8583 (Phone)
202-589-8583 (Fax)

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