IMF Lending and Banking Crises

Abstract

This paper looks at the effects of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1970-2010. The endogeneity of the IMF intervention is addressed by adopting an instrumental variable strategy and a propensity score matching estimator. Controlling for the standard determinants of banking crises, our results indicate that countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than nonborrowing countries. We also provide evidence suggesting that compliance with conditionality and loan size matter.

Keywords: IMF Lending, Banking crisis, Intervention, Crisis prevention, Conditionality, Developing countries, Cross country analysis, Banking crises, IMF programs, Political economy, financial crises, liquidity, monetary fund, loan size, exchange, instruments, loans, creditors, future, exchange rate, moral hazard, debt, liquidity crises, financial crisis, currency, macroeconomic policies, deficit, banking sector, private creditors, financial capital, reserves, sovereign debt, currencies, goods, banking system, financial stability, lenders, bank lending, credit availability, private lenders, capital outflows, debt crises, domestic currencies, financial instability, lender of last resort, international

JEL Classification: G01, F33, F34, O11