The Real Effect of Banking Crises

49 Pages Posted: 12 Oct 2005  

Giovanni Dell'Ariccia

International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR)

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005

Abstract

Banking crises are usually followed by a decline in credit and growth. Is this because crises tend to take place during economic downturns, or do banking sector problems have independent negative effects on the economy? To answer this question we examine industrial sectors with differing needs for financing. If banking crises have an exogenous detrimental effect on real activity, then sectors more dependent on external finance should perform relatively worse during banking crises. The evidence in this paper supports this view. Additional support comes from the fact that sectors that predominantly have small firms, and thus are typically bank dependent, also perform relatively worse during banking crises. The differential effects across sectors are stronger in developing countries, in countries with less access to foreign finance, and where banking crises were more severe.

Keywords: Banking crises, bank lending channel

JEL Classification: E44, G21

Suggested Citation

Dell'Ariccia, Giovanni and Detragiache, Enrica and Rajan, Raghuram G., The Real Effect of Banking Crises (May 2005). CEPR Discussion Paper No. 5088. Available at SSRN: https://ssrn.com/abstract=776745

Giovanni Dell'Ariccia (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

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Centre for Economic Policy Research (CEPR)

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Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)

International Monetary Fund (IMF) ( email )

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United States

National Bureau of Economic Research (NBER)

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