IMF Lending and Banking Crises

This paper looks at the effects of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1970–2010. The endogeneity of the IMF intervention is addressed by adopting an instrumental variable strategy and a propensity score matching estimator. Controlling for the standard determinants of banking crises, the results indicate that countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than nonborrowing countries. The paper also provides evidence suggesting that compliance with conditionality and loan size matter, corroborating the importance of IMF-supported reform and liquidity provision for banking sector stability.