What drives the systemic banking crises in advanced economies?

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    3 Citations (Scopus)

    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.

    Original languageEnglish
    Article number100746
    JournalGlobal Finance Journal
    Volume54
    DOIs
    Publication statusPublished - Nov. 2022

    Keywords

    • Asset bubbles
    • Binary response model
    • Capital inflows
    • Risk perception
    • Systemic banking crises

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