Speaker:John Boyd (Carlson School of Management, University of Minnesota )
Venue: MNB-Széchenyi terem (please bring your passport/ID card with you!)
Time: 15.15 pm, Thursday, June 24,2010
Abstract
We formulate a simple theoretical model of a banking industry which we use to identify and construct theory-based measures of systemic bank shocks (SBS). These measures differ from “banking crisis” (BC) indicators employed in many empirical studies, which are constructed using primarily information on government actions undertaken in response to bank distress. Using both country-level and firm-level samples, we show that SBS indicators consistently predict BC indicators based on four major BC series that have appeared in the literature, indicating that BC indicators actually measure lagged policy responses to systemic bank shocks. We then re-examine the impact of macroeconomic factors, bank market structure, deposit insurance, and external shocks on the probability of a systemic bank shocks (SBS) and on banking crisis (BC) indicators. We find that the impact of these variables on the likelihood of a policy response to banking distress is totally different from that on the likelihood of a systemic bank shock. Disentangling the effects of systemic bank shocks and policy responses turns out to be crucial in understanding both the roots of bank fragility and the relevant policy implications. Many findings of a large empirical literature need to be reassessed and/or re-interpreted.