Abstract
This paper updates and expands the database on systemic banking crises presented in Laeven and Valencia (IMF Econ Rev 61(2):225–270, 2013a). The database draws on 151 systemic banking crisis episodes around the globe during 1970–2017 to include information on crisis dates, policy responses to resolve banking crises, and their fiscal and output costs. We provide new evidence that crises in high-income countries tend to last longer and be associated with higher output losses, lower fiscal costs, and more extensive use of bank guarantees and expansionary macro-policies than crises in low- and middle-income countries. We complement the banking crisis dates with sovereign debt and currency crises dates to find that sovereign debt and currency crises tend to coincide with or follow banking crises.
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Source: World Economic Outlook, IMF, IFS, and authors’ calculations
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Notes
Examples of such severity include Latvia’s 1995 crisis, when banks totaling 40% of the financial system’s assets were closed, and more recently, Moldova (2014) and Ukraine (2014).
We express our measure of fiscal costs in terms of GDP. However, whenever available, we also report fiscal costs expressed in % of financial system assets.
Other researchers (e.g., Demirgüç-Kunt and Detragiache 1998) have used milder thresholds resulting in more crisis episodes. However, milder thresholds tend to increase the proportion of non-systemic events in the sample, while our focus is on systemic crises.
Although we do not consider a quantitative threshold for this criterion, in all cases, guarantees involved significant financial sector commitments relative to the size of the corresponding economies.
Laeven and Valencia (2013a) also present information on whether a previous explicit deposit insurance arrangement was in place at the time of the introduction of the blanket guarantee.
This measure of liquidity would also capture the impact of currency swap lines among central banks, agreed during the global financial crisis, to the extent that they were used to inject liquidity in the financial sector.
We use the end-of-period official nominal bilateral exchange rates from the IMF’s World Economic Outlook (WEO) database. For countries that meet the currency crisis criteria for several consecutive years, we use the first year of each 5-year window to identify the crisis. While our approach resembles that of Frankel and Rose (1996), our thresholds are not identical to theirs.
As in Laeven and Valencia (2013a), we exclude from the list currency crises that occur in countries that were early in the process of transition toward market economies.
We define a twin crisis in year T as a banking crisis in year T, combined with a currency (sovereign debt) crisis during the period [T − 1, T + 1], and we define a triple crisis in year t as a banking crisis in year T, combined with a currency crisis during the period [T − 1, T + 1] and a sovereign debt crisis during the period [T − 1, T + 1]. Identifying the overlap between banking (currency) and sovereign crises follows the same approach, with t the year of a banking (currency) crisis.
We exclude domestic non-deposit liabilities from the denominator of this ratio because information on such liabilities is not readily available on a gross basis.
Laeven and Valencia (2013a) also report the increase in reserve money across episodes, which also captures the use of unconventional monetary policy, to conclude the greater use of monetary policy in high-income countries. We have streamlined the accompanying data file to facilitate use and to include only variables where the updating was feasible. Therefore, we exclude a few variables from the current release, but the reader can still find them in Laeven and Valencia (2013a).
Our calculation of fiscal costs also excludes deferred tax assets (i.e., for Spain, these deferred tax assets amounted to €70 billion as of end-2016 according to IMF 2017).
We report the fiscal costs in % of GDP, where nominal fiscal costs, expressed first in domestic currency, are divided by the nominal GDP of the corresponding year when the outlays took place.
We take the fiscal costs and recoveries from Laeven and Valencia (2013a). For episodes starting in 2007 or later, we updated the fiscal costs and recoveries using official national publications. For European countries, whenever national sources did not publish information on these costs, we took data from the European commission scoreboard and Eurostat (http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit/supplemtary-tables-financial-crisis).
A case in point is Iceland, where we report net fiscal costs for 3.3% of GDP, which excludes bank equity held by the government valued at approximately 12% of GDP in 2016. This exclusion explains the bulk of the difference between our estimates of the net fiscal costs and the -9% of GDP reported in the 2016 IMF Article IV Staff Report.
For most countries, the financial system assets data are taken from the World Bank’s Financial Structure database and consist of domestic claims on the private sector by banks and non-bank financial institutions. In the case of European Union countries, for which cross-border claims can be sizeable, we instead use data from the European Central Bank (ECB) on the consolidated assets of financial institutions (excluding the Eurosystem and other national central banks), after netting out the aggregated balance sheet positions between financial institutions. Moreover, in the case of Iceland, where cross-border claims are also sizable, we use the assets of monetary and other financial institutions obtained from its national central bank.
A handful of episodes appear with fiscal costs of more than 100% of financial system assets. This anomaly is the outcome of hyperinflation since we take financial system assets as of the year preceding the banking crisis and fiscal outlays as of the year when they are incurred.
We approximate the increase in public debt by computing the difference between pre- and post-crisis debt projections. For crises starting in 2007 or later, we use as pre-crisis projected debt increase, between T − 1 and T + 3, reported in the World Economic Outlook (WEO) issued in the fall of the year before the crisis start date (T) while the post-crisis actual debt increase, again over T − 1 and T + 3, is based on data from the Fall 2017 WEO. The ratios to GDP are computed using the latest GDP series. For past episodes, we report the actual change in debt.
In computing end dates, we use bank credit to the private sector (in national currency) from IFS (line 22d). Bank credit series is deflated using CPI from WEO. GDP in constant prices (in national currency) also comes from the WEO. When credit data are not available, we determine the end date as the first year before GDP growth is positive for at least 2 years. When the definition is met in the first year of the crisis, then we set the crisis end year equal to the starting year.
We calculate output losses as the cumulative sum of the differences between actual and trend real GDP over the period [T, T + 3], expressed as a percentage of trend real GDP, with T the starting year of the crisis. We compute trend real GDP using an HP filter (with λ = 100) to the log of real GDP series over the period [T − 20, T − 1] or the longest available series as long it includes at least 4 pre-crisis observations. We extrapolate real GDP using the trend growth rate over the same period. Real GDP data come from the fall 2017 WEO.
Cerra and Saxena (2017) argue that on average, all types of recessions, not just those associated with financial and political crises, lead to permanent output losses.
This conclusion is different than the one in Mishkin (1996), written before the global financial crisis, which affected mostly advanced countries with intensity and global proportion not seen since the Great Depression.
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Acknowledgements
The authors thank Linda Tesar (the Editor), two anonymous referees, Sergei Antoshin, Ashok Bhatia, Raymond Chaudron, Luis Cortavarria-Checkley, Ingimundur Friðriksson, Vikram Haksar, Samba Mbaye, Aiko Mineshima, Herimandimby Razafindramanana, Mohamed Sidi Bouna, and Jón Þ. Sigurgeirsson for insightful comments and Eugenia Menaguale, Sandra Daudignon, and Carl-Wolfram Horn for outstanding research assistance. The views expressed in this paper are those of the authors and do not reflect the views of the ECB, the Eurosystem, the IMF, the IMF Executive Board, or IMF Management.
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