Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises
48 Pages Posted: 1 Jul 2000 Last revised: 29 Nov 2022
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Staying Afloat When the Wind Shifts: External Factors and Emerging Market Banking Crises
Date Written: January 1998
Abstract
We analyze banking crises using a panel of macroeconomic and financial data for more than one hundred developing countries from 1975 through 1992. We find that banking crises in emerging markets are strongly associated with adverse external conditions. In particular Northern interest rates are strongly associated with the onset of banking crises in developing countries, even after taking into account a host of internal macroeconomic factors. A one percent increase in Northern interest rates is associated with an increase in the probability of Southern banking crises of around three percent. Our results also seem insensitive to the effects of differing exchange rate regimes, external debt burdens and domestic financial structures.
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