Financial liberalization and banking crisis: A spatial panel model

This paper investigates the determinants of banking system fragility by underlining the impact of bank liberalization on banking stability during the process of financial liberalization in emerging and developed countries. To this effect, we adopted a panel model with spatial dependency from a transmission channel points towards trade interactions to estimate the parameters of the model on a panel of 40 emerging and developed countries during 1989-2010. The empirical results suggest that financial liberalization has the tendency to stimulate the banking instability in economies.