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Not all banking crises are alike: Assessing their distributional impacts relative to pre-crisis credit gaps

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  • Atsebi, Jean-Marc
  • Ligonnière, Samuel
  • Mathonnat, Clément

Abstract

The empirical literature on the effects of banking crises on income inequality has yielded mixed findings. In this paper, we aim to reconcile these mixed results by evaluating the effects of banking crises on income inequality in relation to pre-crisis credit gaps. We apply the Local Projections methodology to a yearly panel of 68 banking crises that occurred in 59 countries over the period 1970–2017. Three key results emerge. First, banking crises lead to increased income inequality. Second, only those banking crises preceded by larger credit gaps show a significant increase in income inequality. Third, a deeper contraction in the credit supply and a higher unemployment rate are two channels that could potentially explain why inequality rises more after banking crises with larger pre-crisis credit gaps. These results underscore the importance of macroprudential policies that, as well as limiting the amplitude of the financial cycle and the associated risks of financial crises, could also play a key role in reducing the distributional consequences of banking crises.

Suggested Citation

  • Atsebi, Jean-Marc & Ligonnière, Samuel & Mathonnat, Clément, 2025. "Not all banking crises are alike: Assessing their distributional impacts relative to pre-crisis credit gaps," Journal of International Money and Finance, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:jimfin:v:150:y:2025:i:c:s0261560624002079
    DOI: 10.1016/j.jimonfin.2024.103220
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    More about this item

    Keywords

    Banking crises; Credit gap; Income inequality; Local projections;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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