Download Net External Position and Banking Crisis

V. Anadolu International Conference in Economics,
May 11-13, 2017, Eskişehir, Turkey.
Net External Position and Banking Crisis
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Mahir Binici , Aytül Ganioğlu
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Abstract
Do financial development and external position of a country affect its likelihood of having a systemic banking
crisis? We address this question using data from 68 emerging and advanced countries over the sample of 19702011. We do not simply rely on a single measure of financial development, instead we explore both de facto
and de jure indicator of this phenomena to account for both its institutional and economic aspects. Controlling
for standard macro variables, and using a pooled probit model and a broad set of robustness checks, first, we
find that net external position of a country significantly affects its likelihood of having a systemic crisis. Being a
creditor implies that a country could significantly lower the risk of banking crisis. Second, we find that the
financial development raises the crisis risk significantly, while its impact depends on the net asset position of
the country. This indicates that there is a potential amplification effect that countries with more developed and
complex financial system that are also debtor (with negative net asset position) have higher potential of
experiencing a systemic banking crisis.
Keywords: Banking crisis, net external position, financial development, probit.
Jel Codes: E44, F34, G15, H63
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Corresponding Author. Central Bank of Turkey, [email protected]
Central Bank of Turkey, [email protected]