Net External Position, Financial Development, and Banking Crisis

Aytul Ganioglu

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: Does the external position of a country that is conditioned on financial development impact the likelihood of a systemic banking crisis? We address this question using data from 149 developing and advanced countries from 1970 to 2011, as well as a variety of statistical tools. Our findings are twofold. First, we find that the net external position of a country significantly affects its likelihood of a systemic crisis depending on the level of financial development. Conditional on low to moderate financial development, countries can lower the risk of banking crises significantly by maintaining a net foreign creditor status. Second, we find that the level of financial development raises a country�s crisis risk significantly while its impact depends on the net asset position. This indicates a potential amplification effect in which countries with more developed and complex financial systems that are also debtor countries have a higher potential of incurring a systemic banking crisis.

Keywords: Banking crisis; Net external position; Financial development; Probit (search for similar items in EconPapers)
JEL-codes: E44 F34 G15 H63 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
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Journal Article: Net external position, financial development, and banking crisis (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1814

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