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This paper studies the factors associated with the emergence of systemic banking crises in a large sample of developed and developing countries in 1980-94 using a multivariate logit econometric model. The results suggest that crises tend to erupt when the macroeconomic environment is weak, particularly when growth is low and inflation is high. Also...
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... 2 and 3 contain the main results of our econometric investigation. Table 2 reports four regressions using the panel that excludes observations following the first banking crisis, while Table 3 reports the same regressions for the panel in which observations following the end of a crisis episode are included. The first specification includes only the macroeconomic variables and GDP per capita, and it encompasses the largest set of countries. ...
Context 2
... the impact of a change in each explanatory variable depends upon the initial values of all the independent variables and their coefficients. To gain some insight on the relative impact of each explanatory variable, using estimated coefficients from equation (3) in Table 3, we have computed elasticities for a much-studied episode, the Mexican banking crisis of 1994. As shown in Table 5, the largest elasticities are those of the rate of output growth and of the share of private credit to GDP (the latter variable, though, is significant only at the 10 percent confidence level). ...
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... Anginer et al. (2014) stated that countries with strong institutional quality can promote effective supervision. Demirgüç- Kunt and Detragiache (1998) found that financial fragility is positively associated with weaker institutions, particularly in areas concerning the rule of law, corruption levels, and contract enforcement. Ashraf (2017) found that political institutions, as a component of institutional quality, significantly influence bank risk-taking. ...
The objective of this study is to explore the effect of Environmental, Social, and Governance (ESG) practices, and institutional quality on banks financial stability in the Gulf Cooperation Council (GCC) region for the period from 2010 to 2023. To achieve this, the study utilizes a Generalized Quantile Regression (GQR) on a sample of 33 GCC banks. The regression analysis assesses the influence of ESG measured by ESG score, and institutional quality, measured using an index of the average of six core aspects of governance “voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption” on banks financial stability. We measure financial stability using the Z-score and the Standard Deviation of Return on Assets (SDROA), we employ eight control variables in our analysis “Bank Size, Deposits, Solvency, Equity, Competition, ROE, Islamic banks, GDP, Inflation, and Oil Rents” Our findings reveal that ESG scores positively impact bank stability, while institutional quality has a negative effect. Our findings suggest key policy actions to regulators and policy maker to enhance bank stability.
... High real interest rates are linked to systemic problems in the banking sector, including vulnerability to balance of payments crises and lax law enforcement. Low interest rates harm bank performance and eat away at net interest margins (Demirgüç-Kunt & Detragiache, 1998). Karadžić and Đalović (2021) analyzed profitability determinants in 47 large European banks (2013-2018) using panel data models and GMM. ...
The banking sector in the Western Balkan countries has changed dramatically in recent years. A variety of factors have contributed to these changes, such as economic growth, increased competition, and the implementation of new regulations. As a result, the profitability of the banking sector varies greatly between countries. The purpose of this research is to look into the impact of internal and macroeconomic factors on the profitability of the banking sector in the Western Balkan countries. The research used 85 observations from unbalanced panel data from five countries from 2005 to 2021. Data were gathered from the International Monetary Fund’s World Economic Outlook Database, which contains information on the trend and progress of banking in the Western Balkans. The variables used included macroeconomic variables, internal bank variables, and industry variables, with return on assets and return on equity used to measure bank profitability. Panel regression with pooled least squares, fixed effects, and random effects was used to analyze these variables. Internal factors such as bank Z-score, 3-bank asset concentration, bank net interest margin, bank overhead costs to total assets, bank credit to deposits, and bank capital to total assets have a positive impact on profitability, according to the findings. GDP and inflation, for example, have a mixed impact on profitability. The impact of industry factors such as liquid assets, deposits, and short-term funding, as well as bank Z-score, on profitability is mixed. The study’s findings have significant implications for policy experts and bank managers in Western Balkan countries. The findings can be used by policymakers to create policies that promote the profitability of the banking sector. The findings can be used by bank managers to improve their banks’ profitability by making strategic decisions about asset allocation, capital structure, and risk management.
... These statistics demonstrate the ongoing problem of non-performing loans (NPLs) in Pakistani banks, which raises concerns about the possibility of an impending banking and economic disaster. The significance of this concern is emphasized by the fact that a high NPL ratio, exceeding 10% in the banking system, is considered a threshold for a developed crisis (Demirgüç-Kunt & Detragiache, 1998). The scenario outlined in the background is not only validated by these statistics but also appears to escalate over time. ...
Credit risk, commonly measured by non-performing loans (NPLs), serves as a key indicator of commercial banks' financial stability. This empirical study aims to scrutinize selected factors influencing credit risk, measured through NPLs in Pakistani commercial banks. Examining a balanced panel of 18 banks spanning 15 years (2006-2020), totalling 270 observations, the study employs the feasible generalized least square (FGLS) method to address panel data issues. Multiple linear regression analysis with random and fixed effects, facilitated by STATA 17, reveals that, except for the unemployment rate, all identified factors significantly impact NPLs. Particularly noteworthy are inflation and management efficiency, identified as novel contributors to NPL variability. The study advocates for autonomous and responsible regulatory policies to adeptly control credit risk, emphasizing the necessity for commercial banks to adopt robust screening and control methods in lending. It further recommends a proactive role for the Pakistani government in fostering a conducive environment through attractive interest rates and inflation control, anticipating these measures to play a pivotal role in facilitating lending, mitigating credit risk, and indirectly enhancing the country's economic growth.
... Bankacılık sektörünün tamamı üzerine yapılan çalışmalar ise aşağıda yer almaktadır Demirgüç-Kunt and Detragiache (1998), 5 gelişmiş ve gelişmekte olan ülkenin 1980-1994 yıllarına ait verilerini kullanarak regresyon analizi yapmışlardır. Bulgulara göre reel faiz oranları ile sermaye yeterlilik oranı arasında negatif bir ilişkinin olduğunu bulmuşlardır (Demirgüç-Kunt & Detragiache, 1998). Williams (1998), Avustralya'da bankalara ait 1987-1993 yıllarına ait verileri kullanarak analiz yapmıştır. ...
Bu çalışmanın temel amacı, katılım bankalarının sermaye
yeterliliği üzerindeki etkilerini derinlemesine incelemektir. Bu
doğrultuda, çalışmamız, katılım bankalarının mikro ve makro
ekonomik değişkenlerinin sermaye yeterliliği üzerindeki etkilerini
güncel verilerle analiz ederek literatüre yeni ve özgün katkılar
sağlamayı hedeflemektedir. Mevcut literatür, genellikle belirli
parametreler üzerinden sermaye yeterlilik oranını analiz etmiş olsa
da bu çalışma, daha geniş bir değişken yelpazesini bir araya getirerek
ve en güncel verileri kullanarak, katılım bankacılığı alanında farklı
bir perspektif sunmayı amaçlamaktadır. anel Sabit tkiler Modeli
yönteminin kullanıldığı bu çalışma, bulgularıyla katılım
bankalarının sermaye yeterliliği üzerindeki etkilerini aydınlatmakta
ve sektöre yönelik yeni öngörüler sağlamayı hedeflemektedir.
... Moreover, some studies [30] observed that countries that experienced financial crises frequently employed combinations of unsustainable fiscal, monetary, and financial sector policies. There is also evidence of critical slowing down of fundamentals [31], weak macroeconomic environment, particularly low output and high inflation [42] and high financial leverage [43]. Also, high interest rates are identified to be associated with systemic banking sector problems as well as vulnerability of balance of payments [21]. ...
This study investigates postulates of the ABCT in selected advanced and emerging economies. Specifically, using quarterly data from 1980q1 to 2023q1, it estimates a Structural Vector Autoregressive Model with exogenous variables (SVARX) based on the Stochastic Keynesian Model for 20 selected countries. Outcomes of the study suggest mixed results. First, credit expansion and contraction are indeed induced by deviations of real interest rates from the trend. However, whilst this causal relationship is positive in the West and Latin America, it is negative in East Asia, Africa, and Middle East. Second, in 11 out of the 20 countries, credit expansion leads to substantial positive gaps of real GDP per capita around its potential level. It, however, leads to negative gaps in the remaining nine countries. Third, private consumption actually falls below the trend level in response to a positive shock to credit. Finally, values of imports tend to respond positively to impulses to credit. It concludes that financial crises are due to deviations of real interest rate from the equilibrium rate, which cause the output to deviate from its trend level leading to crises. Therefore, substantial deviations of real interest rates from the equilibrium rates give signals of pending financial crisis.
... However, this optimism is usually followed by a reversal in risk sentiment, causing credit spreads to widen and increasing the likelihood of a crisis when risks materialize (Minsky, 1977;Kindleberger, 1978). The rapid accumulation of credit in the financial system has consistently been identified as a primary catalyst for long-lasting banking crises in numerous studies (e.g., Demirgüç-Kunt and Detragiache, 1998;Kaminsky and Reinhart, 1999;Borio and Lowe, 2002;Reinhart and Rogoff, 2009;Büyükkarabacak and Valev, 2010;Gourinchas and Obstfeld, 2012;Schularick and Taylor, 2012;Jordà et al., 2013;Dell'Ariccia et al., 2016;Müller and Verner, 2023;Ivashina et al., 2024). However, only a few studies have examined the link between credit growth and bank risk (Foos et al., 2010;Igan and Pinheiro, 2011;Baron and Xiong, 2017;Morgan and Zhang, 2018;Le and Nguyen, 2021), the relationship between credit accumulation and bank performance (Baron and Xiong, 2017;Fahlenbrach et al., 2018), and/or the association between credit expansion and systemic risk (Yeșin, 2013;Soedarmono et al., 2017). ...
... Bank deposit (out) flows are significant since any extreme fluctuations can disrupt aggregate consumption and aggregate investment, thus bringing about considerable adverse effects in the macroeconomic environment (Demirguç-Kunt & Detragiache, 1998;Anastasiou & Katsafados, 2023). Furthermore, given that bank assets are usually illiquid, excessive ...
Motivated by the successful usage of machine learning around computer science and its wide acceptance from the finance literature, we utilize monthly data spanning the period 2008–2018 for the Euro area peripheral countries, in order to embark on a two-fold mission. First, to construct short-term prediction models for bank deposit flows in the Euro area peripheral countries, employing machine learning techniques. Second, to examine whether textual features enhance the predictive ability of our models. From the variety of models tested, we find that Random Forest models including both textual features and macroeconomic variables outperform models including only macro factors or textual features. Monetary policy authorities or macroprudential regulators could adopt our approach to timely predict potential excessive bank deposit outflows and assess the resilience of the whole banking sector in the Euro area peripheral countries.
... The investigation of deposit flows and their sources has been increased during the past several years. A banking crisis can be triggered by excessive deposit withdrawals which will disrupt or suspend credits to businesses and households Demirgüç-Kunt and Detragiache (1998). Consequently, investment and consumption decline, potentially leading to widespread bankruptcy. ...
This study explores the asymmetric impact of market sentiment on commercial bank deposits over long-run and short-run periods. Two attitude-based sentiments, the business condition index (BCI) and the consumer sentiment index (CSI) are used to proxy the market sentiment. By utilizing the Nonlinear Autoregressive Distributed Lag (NARDL) method on Malaysian data, the study found the existence of long-run and short-run asymmetric impact of market sentiment on bank deposit flow. Empirical results show that negative changes in market sentiment appear to affect bank deposits significantly in the long run while positive changes in the market sentiment show otherwise. This phenomenon would partially suggest that households might gone through a difficult phase such as job losses and rely on their saving to survive. Income and money supply, amongst other variables, demonstrate a long-run positive relationship with bank deposits, whereas interest rate has a long-run significant negative relationship. Results from NARDL also show that exchange rate, money supply, interest rate, income, and negative changes in BCI and CSI have a short-run effect on deposits. Overall, our study confirms the behavioural finance hypothesis which claims human behaviour affects financial decisions. The government should implement specific measures to reduce the impact of negative sentiment, as an increase in negative sentiment indicates households are likely to withdraw their deposit. Consequently, this phenomenon would affect household savings during their retirement age. Thus, the government should take the initiative or provide incentives to households during a hard time to cushion the impact of bad market sentiment. ABSTRAK Kajian ini meneroka kesan asimetri sentimen pasaran terhadap deposit bank komersial dalam tempoh jangka panjang dan jangka pendek. Dua sentimen berasaskan sikap iaitu indeks keadaan perniagaan (BCI) dan indeks sentimen pengguna (CSI) digunakan sebagai proksi kepada sentimen pasaran. Dengan menggunakan kaedah Lat Tertabur Autoregresif Tidak Linear (NARDL) ke atas data Malaysia, kajian ini mendapati kewujudan kesan asimetri jangka panjang dan jangka pendek oleh sentimen pasaran terhadap aliran deposit bank. Keputusan empirik menunjukkan bahawa perubahan negatif dalam sentimen pasaran memberi kesan yang signifikan terhadap deposit bank dalam jangka panjang manakala perubahan positif dalam sentimen pasaran menunjukkan sebaliknya. Fenomena ini memberi gambaran bahawa isi rumah mungkin melalui fasa sukar seperti kehilangan pekerjaan dan bergantung pada simpanan mereka untuk terus bertahan. Selain itu, pendapatan dan bekalan wang menunjukkan hubungan positif jangka panjang dengan deposit bank, manakala kadar faedah mempunyai hubungan negatif yang signifikan. Keputusan daripada NARDL juga menunjukkan bahawa kadar pertukaran, bekalan wang, kadar faedah, pendapatan, dan perubahan negatif dalam BCI dan CSI mempunyai kesan jangka pendek terhadap deposit. Secara keseluruhan, kajian kami mengesahkan hipotesis kewangan tingkah laku yang menyatakan bahawa tingkah laku manusia mempengaruhi keputusan kewangan. Kerajaan perlu mengambil langkah-langkah tertentu untuk mengurangkan kesan sentimen negatif, kerana peningkatan dalam sentimen negatif menunjukkan isi rumah berkemungkinan besar akan mengeluarkan deposit mereka. Akibatnya, fenomena ini akan memberi kesan kepada simpanan isi rumah semasa mereka mencapai 2 usia persaraan. Oleh itu, kerajaan harus mengambil inisiatif atau menyediakan insentif kepada isi rumah ketika masa sukar untuk meredakan kesan sentimen pasaran yang buruk. Kata kunci: Asimetri; deposit bank; tingkah laku kewangan; sentimen pasaran; NARDL
... Our paper relates to an extensive literature discussing the determinants of the systemic bank crisis. Macroeconomic imbalances are often associated with financial fragility (Demirgüç-Kunt and Detragiache, 1998;Kaminsky and Reinhart, 1999;Hardy and Pazarbaşioglu, 1999). Other contributions look at the effects of fluctuations in the real sectors. ...
This paper provides evidence on the relation between the economic complexity and financial fragility. We document that financial turmoils are more frequent in complex economies, i.e., economies producing a diverse mix of knowledge-intensive products. This is true after controlling for standard predictors of crises. We relate our empirical result to the contributions in development theory that suggest that economic growth is the consequence of structural transformations of an economy. In this perspective, we highlight that while transitioning from a simple to a more complex productive structure can create opportunities for economic growth, its potential dark side is to boost financial instability.
... These studies focus on how economic turmoil weakens corporate borrowers' ability to repay their debt and diminishes bank assets, catalyzing bank failure. These studies show that other banks negatively respond to the bankruptcy of large banks, and this negative response is more likely to occur when growing regulations are supposed to cause a failure (Aharony & Swary, 1983;Demirgüç-Kunt & Detragiache, 1998;Jayanti et al., 1996;Peavy & Hempel, 1988;Smith & White, 1990). ...
This paper examines the spillover effects of bankruptcy by important tech industry banks—Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank—on the top 10 institutions in the MSCI Bank Index and the role that monetary policy by the US Federal Reserve (the Fed) played in this contagion, using Dynamic Conditional Correlation-Exponentional Generalized Autoregressive (DCC-EGARCH) and time-varying Granger-causality models. Our findings show that the dynamic conditional correlations among the banks were higher during the period of the SVB crisis, implying the presence of financial contagion from the bank's bankruptcy due to uncertainty triggered by its collapse. Financial contagion emerges between SVB and the top 10 banks, and the degree of contagion rises during the crisis period. Moreover, the Fed's monetary policy plays a significant role in contagion due to bank failures. The deepening of financial contagion followed the Fed's increases in the federal funds rate to combat inflation.
