Politics and the determinants of banking crises: the effects of political checks and balances
There is likely to be little disagreement with the observation that political interference has exacerbated the problems associated with bank insolvencies. Nevertheless, most ot the analytical attention given to bank crises has focused on technocratic mistakes (inappropriate regulatory choices), exogenous shocks, contagion effects, and other purely economic determinants of crisis. The implicit political economy assumption underpinning this work is that politicians in different countries generally respond similarly to politicial sector, so thet one need not control for political parameters when examining financial sector crises. This assumption is helful in isolating the relationships among economic variables. However, as a factual matter, the incentives of political actors differ significantly across countries. One way in which they differ, and which is the focus of this paper, is in the extent of checks and balances that they exhibit in government decisionmaking.