Bank Runs and Banking Policies: Lessons for African Policymakers

This paper documents and explains the near-permanent banking stress African countries have experienced during the last 20 years. The central hypothesis is that banking stress comes predominantly from unbooked losses and that the level of unbooked losses a banking system can accumulate depends on its information environment and on the effectiveness of government efforts to supervise and guarantee bank solvency. African depositors face high costs for mitigating the loss exposures that banks and regulators impose on them and African regulators have not been made accountable for these costs. We present evidence that over 1980-99 the average length of time an African banking system spent in crisis increased with the level of government corruption.