IMF Lending and Banking Crises

Abstract

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, our results indicate that countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than non-borrowing countries. The authors also provide evidence suggesting that compliance with conditionality and loan size matter. This work is part of the ‘Macroeconomics in Low-income countries’ programme