The key dependent variable we use is the difference in a given bank’s loan-to-asset ratio between 2006 and 2009.<sup>10</sup> The dependent variable thus directly captures, in percentage points, the increase (or decrease) in the loan-to-asset ratio just prior to and immediately following the crisis. A bank that initially possesses a high loan-to-asset ratio runs a higher risk of default by borrowers; an increase in this variable therefore indicates that the bank has also increased proportionately its lending relative to its assets (and thus its exposure to default risk).

Our primary variable of interest, the stock of _crisis experience_ , is constructed in three steps. We begin with data on bank ownership, which is an update of the one built by Claessens, van Horen, Gurcanlar & Mercado (2008) (and independently updated by Claessens & van Horen (2014)). The dataset includes annual observations for 4,496 domestic and foreign-owned<sup>11</sup> commercial, saving, and cooperative banks, as well as bank holding companies, for the period 1995 to 2010, spanning 131 developing countries. The ownership variable is coded from _Bankscope_ , and supplemented with additional sources in order to definitively establish majority ownership.<sup>12</sup> Next, we use data on past financial crises by Reinhart & Rogoff (2009) to construct measures of the stock of financial crises. The dataset documents financial crises that occurred across 70 countries between 1800 to 2010. Six different categories are defined: currency, inflation, banking, domestic debt, external debt, and stock market crises; each of which corresponds to an objective threshold—or to the occurrence of specific events—that would constitute a crisis episode. If crisis conditions are fulfilled for a given episode, we assign to the specific type of crisis an indicator of unity, and zero otherwise. We then aggregate crisis histories for the period between 1800 and 2005,<sup>13</sup> by type, to obtain a country’s cumulative stock of each class of crisis, resulting in six distinct crisis history indicators.

For the baseline results, we further refine this measure by aggregating four of the six types of crisis histories: currency, banking, domestic debt, and stock market crises.<sup>14</sup> Our decision to exclude external debt and inflation crises are for two separate reasons. We exclude inflation crises because of its very high correlation with currency crises; the simple Pearson _ρ_ is 0.70, and highly statistically significant.<sup>15</sup> This fact is recognized as much by Reinhart & Rogoff (2009, p. 1678), who point out that “currency crashes and inflation crises go hand in hand.” To avoid overweighting GDP, and then separating the the sample into three equally-sized groups of countries, with an indicator variable corresponding to each group.

> 10In contrast to some of the literature, we prefer the use of differences as opposed to the growth rate, because our view is that the latter unnecessarily overweights changes in banks starting from a low initial base. Many of our results are robust to this alternative metric, however, and are available on request.

> 11Our definition of foreign ownership is direct ownership of a bank (or bank holding company) by a country of at least 50 percent of its shares. If the shares of a bank are majority held by foreigners from different countries, the nationality is that of the country with the highest share. Further details on the construction of this variable are provided in the appendix.

> 12These supplementary sources include websites and annual reports, banking regulators’ publications and announcements, parent companies’ reports, and news articles.

> 13Excluding post-2005 episodes is natural and avoids the problems associated with simultaneity and reverse causality that would result otherwise.

> 14We do so with an unweighted sum. An alternative aggregation methodology would involve constructing an aggregate from the principal components of the four relevant variables; results for this alternative are considered in our robustness checks.

> 15A correlation matrix of the instrumental variables is provided in the appendix.

11