How Bank Market Concentration, Regulation, and Institutions Shape the Real Effects of Banking Crises

This paper studies the influence of bank market concentration, regulation, and institutions on the real effects of 68 systemic banking crises in 54 countries over the 1980-2000 period. We find that less stringent restrictions on non-traditional bank activities and on the mixing of banking and commerce have a negative effect on economic growth during normal periods but mitigate the negative effects of banking crises on economic growth. This changing influence between crisis and non-crisis periods is reinforced by market concentration. We also find that explicit deposit insurance and better-quality accounting standards mitigate the negative real effects of systemic banking crises and interact positively with bank concentration to minimize the reduction of economic growth during crisis episodes. These results are evidence of the greater benefits that long-term relationships and the mixing of banking and commerce may provide during banking crises.