Project Management

Banking Crises And Crisis Dating: Theory And Evidence

Date Added: Jul 2009
Format: PDF

Many empirical studies of banking crises have employed "Banking crisis" (BC) indicators constructed using primarily information on government actions undertaken in response to bank distress. This paper formulates a simple theoretical model of a banking industry which one uses to identify and construct theory-based measures of systemic bank shocks (SBS). Using both country-level and firm-level samples, the author shows that SBS indicators consistently predict BC indicators based on four major BC series that have appeared in the literature. Therefore, BC indicators actually measure lagged government responses to systemic bank shocks, rather than the occurrence of crises per se.