International comparisons of bank regulation, liberalization, and banking crises

Abstract

Purpose The recurrence of banking crises throughout the 1980s and 1990s, and in the more recent 2008‐09 global financial crisis, has led to an expanding empirical literature on crisis explanation and prediction. The purpose of this paper is to provide an analytical review of proxies for and important determinants of banking crises‐credit growth, financial liberalization, bank regulation and supervision. Design/methodology/approach The study surveys the banking crisis literature by comparing proxies for and measures of banking crises and policy‐related variables in the literature. Advantages and disadvantages of different proxies are discussed. Findings Disagreements about determinants of banking crises are in part explained by the difference in the chosen proxies used in empirical models. The usefulness of different proxies depends partly on constraints in terms of time and country coverage but also on what particular policy question is asked. Originality/value The study offers a comprehensive analysis of measurements of banking crises, credit growth, financial liberalization and banking regulations and concludes with an assessment of existing proxies and databases. Since, the review points to the choice of proxies that best fit specific research objectives, it should serve as a reference point for empirical researchers in the banking crisis area.

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