Drivers of Systemic Banking Crises: The Role of Bank-Balance-Sheet Contagion and Financial Account Structure

This paper examines whether the composition of a country’s external liabilities and assets has an incidence on its risk of suffering financial turmoil. Particular emphasis is put on the role of international financial integration, using newly-constructed measures of contagion shocks. These new measures capture well the contagion observed e.g. in the wake of the Mexican and Asian crises, and confirm that contagion shocks observed in 2009/10 dwarfed those observed during previous financial crises. Using a panel of 184 developed and emerging economies from 1970 to 2009, the empirical analysis finds that the structure of the financial account has an important influence on financial stability. A key result is that a bias in external liabilities towards debt strongly increases the risk of a systemic banking crisis. Moreover, certain forms of international financial integration are found to amplify contagion shocks and increase crisis risk, such as integration through international bank lending, and in particular through short-term bank debt. Flux de capitaux internationaux et fragilite financiere - Partie 1. Les determinants des crises bancaires : Le role de la contagion par le systeme bancaire et de la structure du compte financier L’article etudie les effets de la structure des engagements et creances externes d’un pays sur sa stabilite financiere. Une attention particuliere est portee au role de l’integration financiere internationale. L’article propose de nouvelles mesures de la propagation des chocs par le systeme bancaire. Ces mesures capturent bien les chocs de contagion observes lors des crises mexicaine et asiatique. De plus, elles soulignent que les chocs de contagion lies a la crise financiere de 2009/2010 sont d’un ordre de magnitude different de ceux observes historiquement lors des crises financieres. L’analyse empirique menee sur un panel de 184 pays developpes et emergents de 1970 a 2009 confirme l’importance de la structure du compte financier pour la stabilite financiere. En particulier, un biais de la structure de financement vers la dette augmente fortement la probabilite de crise bancaire. De plus, certaines formes d’integration financiere comme les besoins de financement externes des banques, en particulier a court-terme, amplifient les chocs de contagion et augmentent les risques de crises.

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