Do political factors influence banking crisis? |
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Institution: | 1. Warsaw School of Economics and Narodowy Bank Polski, Poland;2. Institute of Finance, Warsaw School of Economics, al. Niepodleg?o?ci 162, 02-554 Warsaw, Poland;1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China;2. School of Economics, LeBow College of Business, Drexel University, Philadelphia, PA, USA;3. Research Institute of Economics and Management, Collaborative Innovation Center of Financial Security, Southwestern University of Finance and Economics, Chengdu, China |
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Abstract: | This paper investigates the impending political determinants of banking crisis in advanced economies. In particular, we consider the impact of domestic credit growth on the likelihood of banking crisis and analyse possible constraints on the part of the governments in curbing the unsustainable credit growth. The endogeneity corrected results reveal that the household credit growth has greater impact on the likelihood of banking crisis than the enterprise credit growth. The political channel shows that if governments are concerned about domestic approval rates, then there is a higher chance of credit boom, which in turn increases the prospect of banking crisis. Interestingly, the findings reveal that the presence of an independent and well-functioning central bank mitigates the crisis probability and reduces the opportunistic behaviour of governments. |
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Keywords: | Banking crisis Domestic credit Institutions Elections E6 G01 F3 |
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