Banking in the Horn of Africa (Ethiopia, Eritrea, Djibouti, Somalia, Sudan) is heavily influenced by state control and political uncertainty, differing from mature markets, with governments directing credit and regulation but often lacking fiscal capacity for crises.

Structural challenges include limited financial depth, underdeveloped capital markets, conflict disruptions, and uneven institutional capacity, making systems vulnerable despite strong state authority.

The article emphasizes that true resilience requires building credible institutions, professional supervision, and public trust rather than just expanding government control, as political power alone cannot substitute for robust financial frameworks.

A popular saying in finance is that “banking is the art of making money with other people’s money.” In the Horn of Africa States region, however, one might add a regional twist. Bankingis often the art of trying to do so while navigating political uncertainty, economic constraints, and, occasionally, a drought or two. It is, therefore, unsurprising that the banking systems of the Horn have developed differently from those of more mature financial markets.

The banking sectors of Ethiopia, Eritrea, Djibouti, Somalia, and, in many regional studies, Sudan, are closely intertwined with the state. Governments exercise significant influence through regulation, ownership of major banks, licensing policies, and, in some cases, direct involvement in credit allocation. In theory, this level of state authority should provide governments with considerable leverage during financial crises. In practice, however, authority and capacity are not the same thing.

Walter Bagehot, the nineteenth-century economist whose work still shapes modern........

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