The Politics of Bank Failures: Evidence from Emerging Markets

43 Pages Posted: 30 May 2006 Last revised: 19 Mar 2009

See all articles by Craig Brown

Craig Brown

Purdue University - Department of Finance

Serdar Dinc

Rutgers University

Date Written: June 13, 2005

Abstract

This paper studies large private banks in 21 major emerging markets in the 1990s. It first demonstrates that bank failures are very common in these countries: about 25 percent of these banks failed during the seven-year sample period. The paper also shows that political concerns play a significant role in delaying government interventions to failing banks. Failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after. This result is robust to controlling for macroeconomic and bank-specific factors, a new party in power, early elections, outstanding loans from the IMF, as well as country-specific, time-independent factors. This finding implies that much of the within-country clustering in emerging market bank failures is directly due to political concerns.

Suggested Citation

Brown, Craig O. and Dinc, Serdar, The Politics of Bank Failures: Evidence from Emerging Markets (June 13, 2005). The Quarterly Journal of Economics, Vol. 120, No. 4, November 2005, Available at SSRN: https://ssrn.com/abstract=905100

Craig O. Brown (Contact Author)

Purdue University - Department of Finance ( email )

West Lafayette, IN 47907-1310
United States

HOME PAGE: http://craigobrown.me

Serdar Dinc

Rutgers University ( email )

111 Washington Avenue
Newark, NJ 07102
United States

HOME PAGE: http://serdardinc.com

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