This note explores the costs and benefits of different policy options to reduce the risks associated with credit booms, drawing upon several country experiences and the findings from econometric analysis.

When a country's banking system becomes more linked to the global banking network, does that system get more or less prone to a banking crisis? Using model simulations and econometric estimates based on a world-wide dataset, we find an M-shaped relationship between financial stability of a...

The paper provides an empirical analysis of aggregate banking system ratios during systemic banking crises. Drawing upon a wide cross-country dataset, we utilize parametric and nonparametric tests to assess the power of these ratios to discriminate between sound and unsound banking systems. We...

The purpose of this paper is to study the origins of banking crises in sub-Saharan Africa, drawing upon the experience of ten countries during the period 1985-95. It examines, in particular, which factors were the most important sources of these crises. The conclusions underscore that the...

While deregulated financial markets and strong competition are commonly viewed as prerequisites for successful economic development, recent empirical evidence suggests that financial liberalization, if not well phased, can lead to costly financial crises. This paper focuses on the roles of...

A well-designed deposit insurance system (DIS) will provide incentives for citizens to keep the financial system sound. However, a poorly designed DIS can foster a financial crisis. This paper, therefore, makes recommendations for creating and running a limited, incentive-compatible, DIS. The...

The scramble to expand deposit guarantees in Europe in response to recent financial turmoil confirms that the on-going integration of European financial markets requires closer coordination of prudential policies and financial safety nets. We study the optimal design of prudential supervision...

Only a minority of countries have succeeded in establishing a developed financial system, despite widespread financial liberalization. Confronted with this finding, the political institutions view claims that sustained financial deepening is most likely to take place in institutional...