Against the background of the acknowledged importance of off-balance-sheet exposures in the sub prime crisis, we seek to investigate whether this was a new phenomenon or common to earlier crises. Using a logit approach to predicting banking crises in 14 OECD countries we find a significant...

Early warning systems (EWS) for banking crises generally omit bank capital, bank liquidity and property prices. Most work on EWS has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent. We estimate...

Low levels of bank capital and liquidity in combination with ongoing crises in other countries are shown to increase the probability of banking crises in OECD countries. Hence global coordination of regulatory reform is vital for reducing crisis risks.

Given the magnitude of “global imbalances” in the run-up to the subprime crisis, we test for an impact of the current account balance on the probability of banking crises in OECD countries since 1980. This variable has been neglected in most early warning models to date, despite its...

Simple time series models looking for the effect of financial crises on output generally find that they reduce the sustainable level of output permanently. However, not all crises are the same, with some being caused by recessions and others causing or preceding recessions. Using a common...

In the wake of the subprime crisis, there has been widespread discussion of the disproportionate risks posed to the financial system by large banks that may consider themselves “too big to fail”. This has led in turn to suggestions that radical policies with the effect of reducing bank size...

Simple time series models looking for the effect of financial crises on output generally find that they reduce the sustainable level of output permanently. However, not all crises are the same, with some being caused by recessions and others causing or preceding recessions. Using a common...

Policy proposals on the new international standards for bank capital and liquidity are being debated without any methodical evaluation of their effects on both crisis probabilities and concurrent social costs.

Despite the extensive literature on prediction of banking crises by Early Warning Systems (EWSs), their practical use by policy makers is limited, even in the international financial institutions. This is a paradox since the changing nature of banking risks as more economies liberalise and...