Banking Crises and Crisis Dating: Theory and Evidence

46 Pages Posted: 31 Jul 2010

See all articles by John H. Boyd

John H. Boyd

University of Minnesota - Twin Cities - Carlson School of Management

Gianni De Nicolo

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

Elena Loukoianova

European Bank for Reconstruction and Development

Date Written: July 29, 2010

Abstract

We formulate a simple theoretical model of a banking industry that we use to identify and construct theory-based measures of systemic bank shocks (SBS). These measures differ from “banking crisis” (BC) indicators employed in many empirical studies, which are constructed using primarily information on government actions undertaken in response to bank distress. Using both country-level and firm-level samples, we show that SBS indicators consistently predict BC indicators, indicating that BC indicators actually measure lagged policy responses to systemic bank shocks. We then re-examine the impact of macroeconomic factors, bank market structure, deposit insurance, and external shocks on the probability of systemic bank shocks (SBS) and on “banking crisis” (BC) indicators. We find that the impact of these variables on the likelihood of a policy response to banking distress (as represented by BC indicators) is frequently quite different from that on the likelihood of a systemic bank shock (SBS). We argue that disentangling the effects of systemic bank shocks and policy responses is crucial in understanding the roots of banking crises. We believe that many findings of a large empirical literature need to be re-assessed.

Suggested Citation

Boyd, John H. and De Nicolo, Gianni and Loukoianova, Elena, Banking Crises and Crisis Dating: Theory and Evidence (July 29, 2010). CESifo Working Paper Series No. 3134. Available at SSRN: https://ssrn.com/abstract=1650526

John H. Boyd

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1834 (Phone)

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

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

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