Institutional quality and bank instability: cross-countries evidence in emerging countries

Abstract

This paper highlights the relevant role of the quality of institutions in maintaining banking stability. Poor institutions constitute the key determinants in explaining the emergence of banking crises. An empirical study of 52 emerging and / or developing countries from 1996 to 2009 finds that banking instability is widely associated with a variety of macroeconomic, financial and ,particularly, institutional factors. Our main conclusion stipulates that the strengthening of institutional quality is an essential condition to ensure banking stability. Political stability, voice and accountability, and respect for the rule and law are relevant institutional characteristics in particular.