Cross-country evidence on banking crises: Do financial structure and bank regulation matter?

This chapter examines the effect of bank regulation and financial structure on both the likelihood and cost of banking crises in a diverse group of countries around the world. Bank regulation refers to the allowable activities and ownership arrangements of banks, while financial structure refers to the importance of securities markets relative to banks in the financial intermediation system. After controlling for other important variables previously identified in the literature, we find that financial structure does not matter with respect to either the likelihood or cost of banking crises. Preliminary evidence indicates, however that stricter bank regulation increases both the probability and the cost of banking sector crises.