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This paper asks whether bonanzas (surges) in net capital inflows increase the probability of banking crises and whether this is necessarily through a lending boom mechanism. A fixed effects regression analysis indicates that a baseline bonanza, identified as a surge of one standard deviation from trend, increases the odds of a banking crisis by three times, even in the absence of a lending boom. Thus, a bonanza raises the likelihood of a crisis from an unconditional probability of 4.4 percent to 12 percent. Larger windfalls of capital (two-s.d. bonanzas) increase the odds of a crisis by eight times. The joint occurrence of a bonanza and a lending boom raises these odds even more. Decomposing flows into FDI, portfolio-equity and debt indicates that bonanzas in all flows increase the probability of crises when the windfall takes place jointly with a lending boom. Thus, windfalls in all types of flows exacerbate the deleterious effects of credit. However, surges in portfolio-equity flows seem to have an independent effect, even in the absence of a lending boom. Furthermore, emerging economies exhibit greater odds of crises after a windfall of capital.
This paper explores whether the level of financial integration of banks in a country increases the incidence of systemic banking crises. The paper uses a de facto proxy for financial integration based on network statistics of banks participating in the global market of interbank syndicated loans. Specifically, the network statistics degree and betweenness are used to proxy for the de facto integra ... (View publication)
Deeper financial integration is expected to enable low-saving countries to increase domestic investment but also to increase crisis risks by facilitating the accumulation of risky foreign liabilities. This paper explores the connections between financial integration, investment and crisis risk to assess this tradeoff. It confirms expectations but also finds that the accumulation of safe foreign as ... (View publication)
This paper shows, using probit analysis, that low national savings increase the risk of macroeconomic crisis. Foreign savings are a poor substitute of national savings not only for domestic investment (Feldstein-Horioka result), but also for stability. It is found that deeper financial integration does not cure low investment and can improve the situation only to the extent that the risks of t ... (View publication)
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