Booms and Banking Crises

65 Pages Posted: 17 Feb 2016

See all articles by Frédéric Boissay

Frédéric Boissay

Bank for International Settlements (BIS)

Fabrice Collard

University of Berne - Department of Economics

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

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Date Written: February 2016


Banking crises are rare events that break out in the midst of credit intensive booms and bring about particularly deep and long-lasting recessions. This paper attempts to explain these phenomena within a textbook DSGE model that features a non-trivial banking sector. In the model, banks are heterogeneous with respect to their intermediation skills, which gives rise to an interbank market. Moral hazard and asymmetric information in this market may lead to sudden interbank market freezes, banking crises, credit crunches and severe recessions. Those "financial" recessions follow credit booms and are not triggered by large exogenous adverse shocks.

Keywords: moral hazard, asymmetric information, saving glut, lending boom, credit crunch, banking crisis

JEL Classification: E32, E44, G01, G21

Suggested Citation

Boissay, Frédéric and Collard, Fabrice and Smets, Frank, Booms and Banking Crises (February 2016). BIS Working Paper No. 545, Available at SSRN:

Frédéric Boissay (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Fabrice Collard

University of Berne - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001


Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000

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