Banking crises: An equal opportunity menace

The historical frequency of banking crises is similar in advanced and developing countries, with quantitative parallels in both the run-ups and the aftermath. We establish these regularities using a dataset spanning from the early 1800s to the present. Banking crises weaken fiscal positions, with government revenues invariably contracting. Three years after a crisis central government debt increases by about 86%. The fiscal burden of banking crisis extends beyond the cost of the bailouts. We find that systemic banking crises are typically preceded by asset price bubbles, large capital inflows and credit booms, in rich and poor countries alike.     

Does inequality lead to a financial crisis?

The recent global crisis has sparked interest in the relationship between income inequality, credit booms, and financial crises. Rajan (2010) and Kumhof and Rancière (2011) propose that rising inequality led to a credit boom and eventually to a financial crisis in the US in the first decade of the 21st century as it did in the 1920s. Data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships. Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms. Instead, low interest rates and economic expansions are the only two robust determinants of credit booms in our data set. Anecdotal evidence from US experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality, credit, crisis nexus. Rather, it points back to a familiar boom-bust pattern of declines in interest rates, strong growth, rising credit, asset price booms and crises.     

Bank regulation,property prices and early warning systems for banking crises in OECD countries

Early warning systems (EWS) for banking crises generally omit bank capital, bank liquidity and property prices. Most work on EWS has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent. We estimate logit crisis models for OECD countries, finding strong effects from capital adequacy and liquidity ratios as well as property prices, and can exclude traditional variables. Higher capital adequacy and liquidity ratios have a marked effect on the crisis probabilities, implying long-run benefits to offset some of the costs that such regulations may impose.     

How do bank competition,regulation, and institutions shape the real effect of banking crises? International evidence

This paper studies the influence of bank competition on the real effect of 36 systemic banking crises in 30 countries over the 1980–2000 period and how this influence varies across countries depending on bank regulation and institutions. We find that bank market power is not on average useful for mitigating the negative real effect of a systemic banking crisis. Market power promotes higher growth during normal times in industries that are more dependent on external finance but induces a bigger reduction in growth during systemic banking crises. We also find a country-specific effect depending on bank regulation and institutions. Stringent capital requirements and poor protection of creditor rights increase the benefits of bank market power for mitigating the negative real effect of a systemic banking crisis because bank market power has a positive effect on economic growth during both crisis and non-crisis periods in these environments.     

Costs of financial instability, household-sector balance sheets and consumption

Extant work on costs of financial instability focuses on fiscal costs and declines in aggregate GDP following banking crises. We estimate effects of banking and currency crises on consumption in 19 OECD countries, showing consumption plays an important role in the adjustment following a crisis, and effects are not captured solely by the impact of crises on standard consumption determinants, income and wealth. Additional effects, attributable to factors such as time-varying confidence, uncertainty and credit rationing, are aggravated by high and rising leverage, despite financial liberalisation easing liquidity constraints. High leverage implies that banking crises taking place now could have greater incidence than in the past.     

宏观审慎政策协调能否抑制国际性银行危机传染？——基于跨境金融关联视角的实证研究

本文基于跨境金融关联视角对宏观审慎政策能否抑制国际性银行危机传染这一重要的理论与实践问题进行了实证研究。选取亚洲金融危机和全球金融危机时期遭受冲击的10个代表性国家作为样本,构建Logit模型和多元回归模型探讨本国及具有金融关联的国家协调实施宏观审慎政策对本国系统性银行危机传染的影响。研究表明,具有金融关联的国家出现金融危机会显著增加本国系统性银行危机的发生概率,具有金融关联的国家实施宏观审慎政策对本国信贷的影响比对房价的影响更明显,本国及具有金融关联的国家协调实施宏观审慎政策会显著降低本国系统性银行危机的发生概率。在调整银行危机指标及考虑贸易关联和流动性风险的影响后,研究结果依然保持稳健。本文的研究结论揭示了加强宏观审慎政策协调有助于维护全球金融稳定,对于中国政策当局强化宏观审慎管理具有极其重要的政策含义。     

The real effect of banking crises: Finance or asset allocation effects? Some international evidence

This paper analyzes whether the decline in economic growth that follows a banking crisis occurs because of a reduction in the amount of credit available (finance effect) or a worsening in the allocation of investable resources (asset allocation effect). We use a sample of more than 2500 industrial firms in 18 developed and developing countries that experienced 19 systemic banking crises between 1989 and 2007. The results indicate that banking crises negatively affect firms’ intangible investments, which intensifies the economic downturn. The negative growth effect produced by the worsening of the investment allocation is stronger in countries with highly developed financial systems and institutions.     

Financial crisis,structure and reform

In this study, we examine the relationship between the structure of financial systems and financial crises. Using cross-country data on financial structures and crises, we find that there is a significant short-term reversal in development of the banking sector and the stock market during both bank crises and market crashes, with the corporate bond market moving in the same direction as bank credit. However, the results are significant for countries with market-based financial systems but not for countries with bank-based financial systems. Emerging markets have mainly bank-based financial systems, which may explain why these markets require more time to recover from economic downturns after a financial crisis. Therefore, we argue that governments should emphasize a balanced financial system structure as it helps countries to recover from financial crises more quickly compared with countries that lack such balanced structures.     

Macroeconomic adjustment and the history of crises in open economies

This paper investigates the impact of the history of crises on macroeconomic performance. We first study the impact of past banking crises on the probability of a future banking crisis. We do not detect a learning process from past banking crises. Countries that have already experienced one banking crisis generally have a higher likelihood of experiencing another crisis; and the depth of the crisis does not appear to be affected by the previous historical experience with crisis events. Evidence also suggests that, in middle-income countries, higher de jure capital account openness is associated with lower likelihood of a banking crisis, a lower ratio of non-performing loans during the crisis, and higher levels of forgone output in the crisis' aftermath. In contrast, we find that past crisis experience has a significant impact on savings. When facing considerable political risk, the past does seem to matter – countries with more people who were exposed, over their lifetime, to larger disasters will tend to save more. This association, however, does not hold for countries with more stable political systems.     

Banking regulation and the output cost of banking crises

Using a cross-section time-series of 47 banking crisis episodes in 35 industrial and emerging market economies between the 1970s and 2003, this study analyses the relationship between banking regulation and supervision, and the severity of banking crises measured in terms of the magnitude of output loss. The empirical results show that countries that provide comprehensive deposit insurance coverage and enforce strict bank capital adequacy requirements experience a smaller output cost of crises. Restrictions on bank activities also influence the severity of crises. The results, however, do not suggest that there is a significant impact of bank supervision. In addition, there is no robust evidence that the magnitude of the output cost of crises depends on the extent of banks’ financial intermediation.     

Banking crises and market discipline: International evidence

This paper analyzes the effect of banking crises on market discipline in an international sample of banks. We also evaluate how bank regulation, supervision, institutions, and crisis intervention policies shape the effect of banking crises on market discipline. We control for unobservable bank, country, and time specific effects using a panel data set of banks from 66 countries around 79 banking crises. The results suggest that on average market discipline weakens after a banking crisis. This weakening is higher in countries where bank regulation, supervision, and institutions promoted market discipline before the banking crisis, and where a more accommodative approach is adopted to resolve it.     

The real impact of ratings-based capital rules on the finance-growth nexus

We investigate whether ratings-based capital regulation has affected the finance-growth nexus via a foreign credit channel. Using quarterly data on short to medium term real GDP growth and cross-border bank lending flows from G-10 countries to 67 recipient countries, we find that since the implementation of Basel 2 capital rules, risk weight reductions mapped to sovereign credit rating upgrades have stimulated short-term economic growth in investment grade recipients but hampered growth in non-investment grade recipients. The impact of these rating upgrades is strongest in the first year and then reverses from the third year and onwards. On the other hand, there is a consistent and lasting negative impact of risk weight increases due to rating downgrades across all recipient countries. The adverse effects of ratings-based capital regulation on foreign bank credit supply and economic growth are compounded in countries with more corruption and less competitive banking sectors and are attenuated with greater political stability.     

Off-balance sheet exposures and banking crises in OECD countries

Against the background of the acknowledged importance of off-balance-sheet exposures in the sub prime crisis, we seek to investigate whether this was a new phenomenon or common to earlier crises. Using a logit approach to predicting banking crises in 14 OECD countries we find a significant impact of a proxy for the ratio of banks’ off-balance-sheet activity to total (off and on balance sheet) activity, as well as capital and liquidity ratios, the current account balance and GDP growth. These results are robust to the exclusion of the most crisis prone countries in our model. For early warning purposes we show that real house price growth is a good proxy for off balance sheet activity prior to the sub-prime episode. Variables capturing off-balance sheet activity have been neglected in most early warning models to date. We consider it essential that regulators take into account the results for crisis prediction in regulating banks and their off-balance sheet exposures, and thus controlling their contribution to systemic risk.     

新兴市场国家的国际资本流动与双危机模型扩展

本文基于新兴市场国家经济背景下,从国内中央银行和国内投资者、国际投资者三类主体进行不完全信息博弈的角度对双危机理论模型进行了有效扩展,探讨了对国际资本流动进行和不进行数量和税费控制条件下银行危机与货币危机发生所满足的必要条件,从而更深入全面地探讨了国际资本流动与双危机之间的传导机制。以马来西亚的实际数据对扩展模型的合理性和有效性进行了验证,并对模型中的主要参数对均衡结果的不同影响进行了分析,为类似中国的新兴市场国家制定安全有效的货币政策以及防范金融危机提供了思路和政策建议。     

Financial constraints on investment in an emerging market crisis

We investigate whether capital market imperfections constrain investment during an emerging market financial crisis. Both large currency devaluations and banking sector failures characterize recent crises. Although a currency devaluation should increase exporters’ competitiveness and investment, a failing banking system may limit credit to these firms. Foreign-owned firms, which may have greater access to overseas financing but otherwise face the same investment prospects, provide an ideal control group for determining the effect of liquidity constraints. We test for liquidity constraints in Indonesia following the 1997 East Asian financial crisis, a period when the issuance of new domestic credit shrank rapidly. Exporters’ value added and employment increased after the crisis, suggesting that they profited from the devaluation and had sufficient cash flow to finance more workers. However, only exporters with foreign ownership increased their capital significantly. Our results suggest that liquidity constraints greatly retarded domestic-owned manufacturing firms’ ability to take advantage of improved terms of trade. Specifically, compared to foreign-owned exporters they had resembled before the crisis, after the crisis domestic-owned exporters had more than 20% lower employment and capital and more than 40% lower value added and materials usage.     

Hot money in disaggregated capital flows

We explore the possible existence and behavior of hot money in six categories of disaggregated bilateral capital flows (equity inflows, equity outflows, bond inflows, bond outflows, banking credit inflows, and banking credit outflows) for 12 emerging markets vis-à-vis the US from 1995 to 2012 and provides several new findings. First, we identify the existence of hot money in all six categories above and conclude that both gross inflows and gross outflows can be the sources of hot money. Second, hot money in equity inflows (outflows) engages in positive (negative) feedback trading regarding local stock market returns. Third, some categories of hot money have a temporary influence on local stock market returns while the others have a permanent influence, supporting the explanations of both price pressures and information advantage. Finally, local stock market returns in half of our sample countries, which have tightened capital controls during the late 2000s global financial crisis (GFC), are more affected by hot money than in the other half. Our findings confirm several popular conjectures of hot money, and endorse the use of capital controls to limit financial vulnerability in the run-up to and during the GFC.     

Trade credit and bank credit: Evidence from recent financial crises

This paper studies the effect of financial crises on trade credit for a sample of 890 firms in six emerging economies. Although the provision of trade credit increases right after a crisis, it contracts in the following months and years. Firms that are financially more vulnerable to crises extend less trade credit to their customers. We argue that the decline in aggregate trade credit ratios is driven by the reduction in the supply of trade credit that follows a bank credit crunch, consistent with the “redistribution view” of trade credit provision, whereby bank credit is redistributed via trade credit from financially stronger firms to weaker firms.     

Measuring aggregate risk: Can we robustly identify asset-price boom–bust cycles?

We investigate the extent to which it is possible to detect asset-price booms and banking crises according to alternative identification strategies and we assess their robustness. We find some evidence that house price-booms are more likely to turn into costly recession or to trigger a banking crisis than stock-price booms. Resorting both to a non-parametric approach and a discrete-choice (logit) model, we analyze the ability of a wide set of indicators to robustly explain costly asset-price booms. According to our results, real long-term interest rates and real stock prices tend to increase the probability of a costly housing-price boom, whereas real GDP tends to increase the probability of a costly stock-price boom. Interestingly, the credit-to-GDP gap indicator, sometimes put forward in the literature as a key reference for setting countercyclical capital buffers, does not seem to be a robust leading indicator of costly booms or banking crises.     

利率市场化背景下银行系统性危机的实证研究

从利率市场化的国际经验来看,无论是在发达国家还是发展中国家,其实施过程都容易导致不同程度的银行业危机。采用1973~2012年42个国家的面板数据,对利率市场化背景下的银行业危机进行的实证研究表明：利率市场化的推进将增加银行系统性危机发生的机率,特别是在存款利率市场化阶段,而严格的银行监管是抑制银行系统危机发生的有效方法;显性存款保险制度的设立无助于利率市场化后银行系统性风险的防范,甚至有可能会增加危机发生的机率;资本账户开放下进行利率市场化会增加银行系统危机发生的机率。利率市场化进程中允许开设民营银行不会增加银行系统危机的发生机率。     

Sovereign stress and SMEs’ access to finance: Evidence from the ECB's SAFE survey

We study the effect of sovereign stress on SMEs’ capital structure using restricted-access data from the European Central Bank. We find that during the sovereign debt crisis, and controlling for borrowers’ quality, firms in stressed countries became more likely to be denied credit, to be credit rationed, and to face higher loan rates. Less creditworthy firms were not more likely to become credit constrained, suggesting no flight to quality in lending. We also find that in order to make up for the decline in bank credit firms in stressed countries began relying considerably more on retained earnings and government subsidies.