Banking Crises and Crisis Dating: Theory and Evidence

51 Pages Posted: 4 Aug 2009

See all articles by John H. Boyd

John H. Boyd

Florida International University (FIU) - Department of Economics

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Elena Loukoianova

International Monetary Fund (IMF)

Date Written: July 2009

Abstract

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.

Keywords: Banking crisis, Banking sector, Banks, Cross country analysis, Deposit insurance, Economic models, External shocks, Financial crisis

Suggested Citation

Boyd, John H. and De Nicolo, Gianni and Loukoianova, Elena, Banking Crises and Crisis Dating: Theory and Evidence (July 2009). IMF Working Papers, Vol. , pp. 1-50, 2009. Available at SSRN: https://ssrn.com/abstract=1442243

John H. Boyd

Florida International University (FIU) - Department of Economics ( email )

Miami, FL 33199
United States

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Elena Loukoianova

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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