The Determinants of Banking Crises: Evidence from Developed and Developing Countries†

The paper studies the factors associated with the emergence of systemic banking crises in a sample of developed and developing countries in 1981-94 using a multivariate logit econometric model. The results show that a weak macroeconomic environment with low growth and high inflation makes crises more likely; high real interest rates have also contributed to banking sector fragility, and so does vulnerability to balance-of-payments crises. Countries with an explicit deposit insurance scheme were also particularly at risk, and so were countries with weak law enforcement.