Financial Development and the Duration of Banking Crises

Mardi | 2016-09-27
16h00-17h40 Salle des thèses

Alexandru MINEA – Clément MATHONNAT

Using an extensive dataset covering 96 banking crises in 75 countries over 1977-2014, we study the role of financial development (FD) in the duration of banking crises (DBC). Our duration analysis reveals that FD significantly increases the DBC: moving from the lowest to the highest FD quintile raises the DBC by 4 to 6 years on average, depending on the DBC measure. This result is robust to a broad range of alternative specifications, and is unaffected by unobserved heterogeneity or endogeneity. Moreover, the larger the size of the banking sector, the longer the DBC, while the activity of the banking sector does not significantly affect the DBC. Finally, higher FD significantly increases the DBC at relatively low and high FD levels but has no significant effect for “intermediate” FD levels, while the effect of FD on the DBC increases with the level of economic development.