How does banking sector globalization affect banking crisis?

•Uses different measures of banking crisis for the period 1998–2013.•Employs different frequentists’ econometric methods as well as Bayesian analysis.•Greater banking sector globalization significantly reduces the occurrence of crisis.•Banking-industry specific and macroeconomic factors also affect banking crisis.•Low income countries are most susceptible to poor banking and macro fundamentals.

A key feature of financial services liberalization is increasing banking-sector globalization.Using different measures to capture this phenomenon, the present study examines its impact on banking crisis for a dataset of 138 nations spanning the period 1998–2013, while controlling for other banking-industry specific, macroeconomic and external factors. Employing different econometric models and several robustness checks, I find greater banking sector globalization to reduce the occurrence of banking crisis. Moreover, greater bank asset concentration, diversification, credit flows, real interest rates, inflation rates, M2-to-foreign exchange reserves and nominal exchange rate depreciations significantly increase the likelihood of banking crisis, while higher bank profits, real GDP growth, economic development and economic freedom lower such chances. The results are further examined for nations across different levels of economic development and with different degrees of foreign bank penetration. The findings underscore that foreign bank presence provides greater financial stability in the banking industry of host nations.