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Do political factors influence banking crisis?

journal contribution
posted on 01.01.2019, 00:00 authored by Rashad Hasanov, Prasad BhattacharyaPrasad Bhattacharya
This paper investigates the impending political determinants of banking crisis in advanced economies. In
particular, we consider the impact of domestic credit growth on the likelihood of banking crisis and analyse
possible constraints on the part of the governments in curbing the unsustainable credit growth. The endogeneity
corrected results reveal that the household credit growth has greater impact on the likelihood of banking crisis
than the enterprise credit growth. The political channel shows that if governments are concerned about domestic
approval rates, then there is a higher chance of credit boom, which in turn increases the prospect of banking crisis.
Interestingly, the findings reveal that the presence of an independent and well-functioning central bank mitigates
the crisis probability and reduces the opportunistic behaviour of governments.

History

Journal

Economic modelling

Volume

76

Pagination

305 - 318

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0264-9993

Language

English

Publication classification

C Journal article; C1 Refereed article in a scholarly journal

Copyright notice

2018, Elsevier