IN 1959 geologists discovered 2.8trn cubic metres of natural gas—the largest field in Europe—under the city of Groningen in the Netherlands. Cheap gas and free-spending energy firms were thought to be good news for the entire Dutch economy. But higher gas-export prices in the 1970s raised the value of the guilder by a sixth, hitting the competitiveness of Dutch manufacturing and services. In 1977 The Economist dubbed this economic curse “Dutch disease”.

Other resource-rich countries have tried to avoid this trap. Some have adopted fixed exchange rates to prevent their currencies appreciating. Others save capital inflows in sovereign-wealth funds to avoid distorting their economies. Yet many still have underdeveloped non-commodity sectors. And despite having plenty of cash to invest, banks are particularly affected.

Two recent IMF papers point to a new explanation of why commodity exporters have such stunted banks. The problem, they find, is less the commodity income itself than the sudden changes in it. The first paper* looks at data on trade and financial stability for 71 commodity exporters between 1997 and 2013. It finds a very strong relationship between negative commodity-price shocks and signs of financial fragility that increase the likelihood of severe banking crises.

A new paper** extends this idea. It takes data for 68 developing countries between 1980 and 2014 and finds, strikingly, that bank lending was crimped not only during sudden falls in commodity prices, but also during sudden rises. Investing in and lending to the commodity sector became so seductive that loans to the private sector as a share of GDP, bank deposits and liquidity ratios all fell.

This story, of banks starving other industries of credit during commodity booms, as well as in downturns, is surprisingly common, says Montfort Mlachila, one of the papers’ authors. Nigeria is an example. An oil-price dip in 1998 forced 28 banks to close. Another in 2009 caused a further ten to collapse. Low prices since 2014 mean Nigeria today again risks a banking crisis.

This discovery may also help explain economic underdevelopment. History shows that banking crises—which starve firms of credit in their aftermath—result in deeper recessions, with much slower growth after they end, than other types of slump. So strengthening financial stability should aid economic growth.

The second paper finds that democracies receive a smaller hit from commodity shocks than other regimes. Maybe they are better at curbing corruption, which can skew lending even more towards the commodity sector. But building democracy takes time. It may be easier to use macroprudential policies to rein in overlending to the commodities sector during the boom years. That lesson applies to developing economies as well as advanced ones.

* T. Kinda, M. Mlachila and R. Ouedraogo, “Commodity Price Shocks and Financial Sector Fragility”, IMF Working Paper No. 16/12 (February 2016).

** M. Mlachila and R. Ouedraogo, “Financial Development Resource Curse in Resource-Rich Countries”, IMF Working Paper No. 17/163 (July 2017).