Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?

This article asks whether capital inflows bonanzas increase the probability of banking crises and whether this occurs through a lending boom mechanism. Results indicate that bonanzas more than triple the odds of a crisis, raising its probability to 14% (from an unconditional probability of 4%). This...

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Bibliographic Details
Published in:The Economic journal (London) 2016-03, Vol.126 (591), p.281-316
Main Author: Caballero, Julián A.
Format: Article
Language:English
Subjects:
Bank portfolios
Capital movement
Economic crisis
Lending
Probability
Studies
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Summary:This article asks whether capital inflows bonanzas increase the probability of banking crises and whether this occurs through a lending boom mechanism. Results indicate that bonanzas more than triple the odds of a crisis, raising its probability to 14% (from an unconditional probability of 4%). This effect exists in the absence of a lending boom and is found in both net and gross inflows bonanzas. This effect is driven by portfolio-equity and debt flows. While the effect of debt is channelled through excessive lending, the effect of portfolio-equity flows is present even in the absence of a lending boom.
ISSN:0013-0133
1468-0297
DOI:10.1111/ecoj.12172