The determinants of banking crises: a comprehensive evidence

Purpose In light of continuous concerns about financial and banking stability, this study investigates the determinants of banking crises by analysing the impact of a comprehensive set of macroeconomic, financial, and banking sector variables on the probability of banking crises. Design/methodology/approach This paper exploits a Logit model for a panel dataset covering 166 countries from 1980 to 2021 to identify the determinants of banking crises. It incorporates a comprehensive set of explanatory variables, including macroeconomic factors, financial sector indicators, and banking-specific characteristics. This study also controls for contagion effects. Findings The study finds that excessive bank credit growth, a large banking sector size, high inflation, current account deficits, bank inefficiency, and high non-performing loans increase the likelihood of banking crises in emerging economies. In contrast, broad money growth, central bank reserves, GDP per capita growth, current account surplus, and strong bank profitability and capitalisation mitigate crisis risks. Moreover, this study shows that banking crises tend to spread regionally. Originality/value Unlike previous studies, this study incorporates banking sector size, central bank size, and credit to the government as key variables. It also examines whether the determinants of banking crises change in light of global shocks and analyses regional spillover effects. By providing new insights into crisis transmission and policy implications, this study enhances the understanding of banking crises and offers valuable guidance to policymakers in financial stability management.