What drives the systemic banking crises in advanced economies?

Saktinil Roy

Global Finance Journal, 2022, vol. 54, issue C

Abstract: This paper examines the drivers of post-war “systemic” banking crises in advanced economies. Using binary response models and a balanced panel of data, we show that persistently large departures from the long-run trend in housing and stock markets best predict the crises. Similar deviations in credit markets do not add to the explanatory power of the model that combines housing and stock market dynamics. Indicators capturing financial market risk perception also have high explanatory power. These findings indicate that extrapolative forecasts and neglect of tail risk drive asset market boom-bust cycles and systemic banking crises. Cycles in credit markets are driven by cycles in real-estate and stock markets before the crises. Additionally, capital inflow bonanzas fuel the stock and credit booms that spark systemic crises.

Keywords: Systemic banking crises; Asset bubbles; Risk perception; Capital inflows; Binary response model (search for similar items in EconPapers)
JEL-codes: C23 C25 E44 G01 G15 G41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:54:y:2022:i:c:s1044028322000485

DOI: 10.1016/j.gfj.2022.100746

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