Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises
An emerging consensus among scholars and policy‐makers identifies foreign capital inflows as one of the primary determinants of banking crises in developed countries. We challenge this view by arguing that external imbalances are destabilizing only when banks face substantial competition from securi...
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| Format: | Article |
| Language: | en_US |
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Wiley Blackwell
2018
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| Online Access: | http://hdl.handle.net/1721.1/119457 https://orcid.org/0000-0002-7750-6494 |
| _version_ | 1811075029127921664 |
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| author | Copelovitch, Mark Singer, David |
| author2 | Massachusetts Institute of Technology. Department of Political Science |
| author_facet | Massachusetts Institute of Technology. Department of Political Science Copelovitch, Mark Singer, David |
| author_sort | Copelovitch, Mark |
| collection | MIT |
| description | An emerging consensus among scholars and policy‐makers identifies foreign capital inflows as one of the primary determinants of banking crises in developed countries. We challenge this view by arguing that external imbalances are destabilizing only when banks face substantial competition from securities markets in the process of financial intermediation. We assemble a dataset of banking crises covering the advanced industrialized countries from 1976 to 2011 and find evidence of a conditional relationship between capital inflows, a well‐developed securities market, and the incidence of banking crises. We further explore the impact of capital inflows on banks’ actual risk taking as indicated by their capital adequacy levels and measures of insolvency risk. Our results demonstrate that prudential capital cushions tend to decline with the combination of capital inflows and prominent securities markets. We highlight the political decisions—often made during the early days of a country's financial development—that determine the relative prominence of banks vs. non‐bank financial institutions and conclude with policy recommendations. Keywords:
crises, globalization/integration, international political economy, macroeconomic political economy, reform/stabilization |
| first_indexed | 2024-09-23T09:59:18Z |
| format | Article |
| id | mit-1721.1/119457 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T09:59:18Z |
| publishDate | 2018 |
| publisher | Wiley Blackwell |
| record_format | dspace |
| spelling | mit-1721.1/1194572022-09-26T15:01:37Z Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises Copelovitch, Mark Singer, David Massachusetts Institute of Technology. Department of Political Science Singer, D.A. Singer, David An emerging consensus among scholars and policy‐makers identifies foreign capital inflows as one of the primary determinants of banking crises in developed countries. We challenge this view by arguing that external imbalances are destabilizing only when banks face substantial competition from securities markets in the process of financial intermediation. We assemble a dataset of banking crises covering the advanced industrialized countries from 1976 to 2011 and find evidence of a conditional relationship between capital inflows, a well‐developed securities market, and the incidence of banking crises. We further explore the impact of capital inflows on banks’ actual risk taking as indicated by their capital adequacy levels and measures of insolvency risk. Our results demonstrate that prudential capital cushions tend to decline with the combination of capital inflows and prominent securities markets. We highlight the political decisions—often made during the early days of a country's financial development—that determine the relative prominence of banks vs. non‐bank financial institutions and conclude with policy recommendations. Keywords: crises, globalization/integration, international political economy, macroeconomic political economy, reform/stabilization 2018-12-07T14:56:20Z 2018-12-07T14:56:20Z 2017-09 2017-02 Article http://purl.org/eprint/type/JournalArticle 0954-1985 1468-0343 http://hdl.handle.net/1721.1/119457 Copelovitch, Mark, and David A. Singer. “Tipping the (Im)balance: Capital Inflows, Financial Market Structure, and Banking Crises.” Economics & Politics 29, no. 3 (September 19, 2017): 179–208. https://orcid.org/0000-0002-7750-6494 en_US http://dx.doi.org/10.1111/ecpo.12097 Economics & Politics Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Wiley Blackwell Prof. Singer via Jen Greenleaf |
| spellingShingle | Copelovitch, Mark Singer, David Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises |
| title | Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises |
| title_full | Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises |
| title_fullStr | Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises |
| title_full_unstemmed | Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises |
| title_short | Tipping the (Im)balance: Capital inflows, financial market structure, and banking crises |
| title_sort | tipping the im balance capital inflows financial market structure and banking crises |
| url | http://hdl.handle.net/1721.1/119457 https://orcid.org/0000-0002-7750-6494 |
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