Financial Globalization and Banking Crises in Emerging Markets

“…For example, if an international credit crunch or financial contagion causes a sudden stop in international lending, the banking sector may be unable to repay or roll over its short-term 3 Although this paper does not study the general determinants of banking crises, these crises have been linked to growth declines, inflation, high real interest rates, financial liberalization, deposit insurance, credit booms, spikes in asset prices, and capital inflow surges (Demirgüç-Kunt and Detragiache 1998, Eichengreen and Rose 1998, Reinhart and Rogoff 2008, 2011, Caballero 2014, World Bank 2015. For a summary of the literature, see http://www.worldbank.org/en/publication/gfdr/background/banking-crisis foreign liabilities (Hahm et al 2013).…”

Section: Theoretical Mechanisms and The Related Empirical Literaturementioning

confidence: 99%

“…Both domestic financial crises, such as banking crises, stock market crashes, and official defaults, and external financial crises, such as currency, sudden stop, and international debt crises, have been linked to output declines (Prasad et al 2003, Edwards 2004, Bordo 2006, Reinhart and Rogoff 2008, 2011, De Paoli et al 2009, Claessens et al 2010. The fact that domestic and external crises are positively correlated (Kaminsky and Reinhart 1999, Glick and Hutchison 2001, Reinhart and Rogoff 2014 further suggests that they may be causally related.…”

Section: Introductionmentioning

confidence: 99%

“…Similarly, Caballero (2014) links net and gross inflow surges, debt surges, and surges in equity inflows to banking crises. Joyce (2011) and Ahrend and Goujard (2012) link debt inflows specifically to banking crises. In contrast to these papers, which link external debt stocks and capital inflows to banking crises, we study the relationship between the collection of outstanding foreign claims -the value of the claims that are actually collected, which may, of course, be a consequence of having a large outstanding debt stock and experiencing large capital inflows in the preceding years -to the onsets of crises.…”

Section: Introductionmentioning

confidence: 99%

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Banking Crises, External Crises and Gross Capital Flows

Janus¹,

Riera‐Crichton²

2016

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In this paper, we study the relationship between banking crises, external financial crises and gross international capital flows. First, we confirm that banking and external crises are correlated. Then, as we explore the role of gross capital flows, we find that declines of external liabilities in the balance of payments -a proxy for foreign capital repatriation we call gross foreign investment reversals (GIR) -predict banking as well as external crises. Finally, we estimate the effects of GIR-associated banking crises on the risk of currency and sudden stop crises in an instrumental-variables specification. In developing countries, GIRassociated banking crises increase the onset risk for currency and sudden stop crises by 39-50 and 28-30 percentage points per year respectively. For OECD countries, we show an increase in the currency crisis risk by 33-45 percentage points. JEL codes: F32,

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“…Joyce (2011), and Duttagupta and Cashin (2011). The list of independent variables we use is: per capita GDP, real GDP growth rate, a binary variable denoting hyperinflation (annual CPI>40), the de facto flexibility of the exchange rate regime, a measure of bank liquidity (deposit money bank assets as % of GDP), credit expansion (growth rate of deposit money bank assets), and the degree of openness of the capital account (the Chinn-Ito de jure index).…”

Section: Model I -Panel Of Country-year Observationsmentioning

confidence: 99%

Macroeconomic adjustment and the history of crises in open economies

Aizenman¹

2013

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis 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. Applying data for 1980-2010 for all countries for which the required information is available, controlling for conventional macro variables and the history of banking crises occurring after 1970, 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 present 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. We interpret these results as consistent with a differential sectoral adjustment to a crises hypothesis. The private sector, by virtue of its harder budget constraints, adjusts faster, whereas the government adjusts at a slower pace following a crisis. The financial sector may find itself in between the two. The "too big to fail" doctrine associated with large banks provides them with a softer budget constraint, delaying the day of adjustment; for some, delaying bankruptcy. Occasionally, the separation between banks and the public sector is murky, further delaying necessary adjustments of the financial sector.JEL Classification: F36, F41, E2, E4

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Financial Globalization and Banking Crises in Emerging Markets

Cited by 19 publications

References 74 publications

Partners, not debtors: The external liabilities of emerging market economies

Partners, not debtors: The external liabilities of emerging market economies

Banking Crises, External Crises and Gross Capital Flows

Macroeconomic adjustment and the history of crises in open economies

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