Pandemics of the Poor and Banking Stability
31 Pages Posted: 10 May 2012
Date Written: May 10, 2012
Abstract
We first develop a standard theoretical model that shows that the likelihood of a collapse of the banking industry of a developing country increases, as the joint prevalence of large pandemics such as AIDS and malaria increases. We also show that the optimal bank reserves increase as the prevalence increases. In the empirical part of the paper, we consider a large dataset of developing countries, and we exhibit a strong causality effect from combined prevalence to deposit turnover, as well as a strong causality effect from an increase of combined prevalence to an increase in bank reserves. This effect is strong for tuberculosis. Those empirical facts therefore strongly support our theoretical findings.
Keywords: Pandemics, banking stability, households' deposits, Poor countries
JEL Classification: I18, G21, G28
Suggested Citation: Suggested Citation
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