Cover IMF Working Papers
The Real Effect of Banking Crises
Author: Mr. Giovanni Dell'Ariccia, Raghuram Rajan, and Ms. Enrica Detragiache
Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 063
Language:
English
Publication Date:
01 Mar 2005
DOI:
https://doi.org/10.5089/9781451860825.001
ISBN:
9781451860825
ISSN:
1018-5941
Pages:
34
Keywords:
WP; bank distress; lending channel; growth differential; interaction term; crisis inception
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Banking crises are usually followed by a decline in credit and growth. Is this because crises tend to take place during economic downturns, or do banking sector problems have independent negative effects on the economy? To answer this question we examine industrial sectors with differing needs for financing. If banking crises have an exogenous detrimental effect on real activity, then sectors more dependent on external finance should perform relatively worse during banking crises. The evidence in this paper supports this view. Additional support comes from the fact that sectors that predominantly have small firms, and thus are typically bank-dependent, also perform relatively worse during banking crises. The differential effects across sectors are stronger in developing countries, in countries with less access to foreign finance, and where banking crises have been more severe.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund