Was the subprime crisis unique? An analysis of the factors that help predict banking crises in OECD countries

Publication date: 15 Sep 2010 | Publication type: NIESR Discussion Paper | NIESR Author(s): Barrell, R; Davis, P; Liadze, I | External Author(s): Karim, D | JEL Classification: C52, E58, G21 | NIESR Discussion Paper Number: 363

We assess whether the subprime crisis was in some way unique or unprecedented by testing for an impact of a set of determinants on the probability of banking crises in OECD countries since 1980. The hypothesis of an exogenous probability of a crisis is not considered in the literature, and we also address it, along with testing for the effect of variables that explain crises in emerging markets. We find that a parsimonious logit model can be estimated for OECD<br />

crises, including the subprime period, featuring bank capital adequacy, liquidity, the current<br />

account and changes in house prices as predictors, thus showing the patterns immediately<br />

preceding the subprime crisis were not unprecedented. Not only was the subprime crisis not unique, it was also predictable using data available five years earlier; our model, even if estimated over 1980-2003, could have helped authorities to forecast the subprime crisis and take appropriate regulatory measures.

Keyword tags: 
banking crises, logit, current account, banking regulation