Does the risk on banks’ balance sheets predict banking crises? New evidence for developing countries

Jakob de Haan, Yi Fang and Zhongbo Jing

International Review of Economics & Finance, 2020, vol. 68, issue C, 254-268

Abstract: Simulation results of our theoretical model for banks’ risk-taking behavior suggest that during booms banks have high non-core liabilities, high leverage and few liquid assets, while the reverse holds during busts. We investigate the predictive power of these bank balance sheet variables for future banking crises using monthly data of 147 developing countries for the period 1980–2016. Our results suggest that low levels of liquid assets and domestic financial liabilities, high levels of foreign liabilities and high financial leverage increase are leading indicators of banking crises. Results are robust when we use different (lags of) dependent variables and control variables.

Keywords: Banking fragility; Balance sheet pro-cyclicality; Early warning models (search for similar items in EconPapers)
JEL-codes: C33 F30 G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:68:y:2020:i:c:p:254-268

DOI: 10.1016/j.iref.2020.03.013

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