Determinants of the real impact of banking crises: A review and new evidence

We examine which variables are robust in explaining cross-country differences in the real costs of banking crises. We identify 21 variables frequently used as determinants of the severity of banking crises. After a discussion of five measures based on cumulative output (or output growth) lost after a banking crisis, we examine the drivers of the real impact of banking crises for two preferred measures. Our results suggest that fixed investment and financial openness affect losses in output levels, while fixed investment, the current account balance, liquidity support, monetary policy and financial freedom affect losses in output growth after banking crises.