Banking crises are usually followed by a decline in credit and growth. Is this because crises tend to take place during economic downturns, or do banking sector problems have independent negative effects on the economy? To answer this question we examine industrial sectors with differing needs...

A rapidly growing empirical literature is studying the causes and consequences of bank fragility in contemporary economies. The paper reviews the two basic methodologies adopted in cross-country empirical studies, the signals approach and the multivariate probability model, and their application...

Contemporary banking crises are not accompanied by declines in aggregate bank deposits, and credit does not fall relative to output, but the growth of both deposits and credit does slow down substantially. Output recovery begins the second year after the crisis and is not led by a resumption of...

The paper studies the effects of increased international financial integration when banks are fragile, with a focus on the welfare of bank depositors and of the business sector. A simple model of a small open economy with a fragile banking sector and imperfect capital mobility is developed....

A model is presented in which firms optimally finance investments with both public and private debt. The two instruments are perfect substitutes, except that private debt can easily be renegotiated in insolvency states while public debt cannot. The option to renegotiate is beneficial ex post, as...

We develop a model in which debt forgiveness can be Pareto- efficient because it improves incentives to invest. A debt restructuring plan, however, must be unanimously approved by a multiplicity of creditors who have private information about the liquidation value of the debtor. Using mechanism...

This paper introduces a new database of financial reforms, covering 91 economies over 1973-2005. It describes the content of the database, the information sources utilized, and the coding rules used to create an index of financial reform. It also compares the database with other measures of...

This paper studies whether the policies that, over the past decades, liberalized banking systems around the world have resulted in deeper credit markets. To measure banking sector reforms we use a new index that tracks policy changes in five separate areas for 91 countries over 1973-2005. We...

Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios;...

This paper studies whether compliance with the Basel Core Principles for effective banking supervision is associated with bank soundness. Using data for more than 3,000 banks in 86 countries, the authors find that neither the overall index of compliance with the Basel Core Principles nor the...