Costs of Banking System Instability: Some Empirical Evidence

Hoggarth, Glenn; Reis, Ricardo; Saporta, Victoria

doi:10.2139/ssrn.276182

Cited by 188 publications

(174 citation statements)

References 24 publications

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“…Hoggarth, Reis and Saporta (2002) find that the cumulative output losses have amounted to a whopping 15-20 percent of annual GDP in the banking crises of the past 25 years. Caprio and Klingebiel (1996) argue that the bailout of the thrift …”

Section: Proof Of Propositionmentioning

confidence: 96%

Crisis Resolution and Bank Liquidity

Acharya¹,

Shin²,

Yorulmazer³

2010

Rev. Financ. Stud.

224

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What is the effect of financial crises and their resolution on banks' choice of liquidity?When banks have relative expertise in employing risky assets, the market for these assets clears only at fire-sale prices following a large number of bank failures. The gains from acquiring assets at fire-sale prices make it attractive for banks to hold liquid assets. The resulting choice of bank liquidity is counter-cyclical, inefficiently low during economic booms but excessively high during crises. We present evidence consistent with these predictions.While interventions to resolve banking crises may be desirable ex post, they affect bank liquidity in subtle ways: liquidity support to failed banks or unconditional support to surviving banks reduces incentives to hold liquidity, whereas support to surviving banks conditional on their liquid asset holdings has the opposite effect.J.E.L. Classification: G21, G28, G32, E58, D61

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Section: Proof Of Propositionmentioning

confidence: 96%

Crisis Resolution and Bank Liquidity

Acharya¹,

Shin²,

Yorulmazer³

2010

Rev. Financ. Stud.

224

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“…Previous papers on the real economic costs in terms of output loss of the Nordic crises are IMF (1998), Hoggarth et al (2002), Schwiertz (2004, Hagberg and Jonung (2009) (the latter only analyzing Finland and Sweden). 15 The results are sensitive to the measurement of output trends, how the start of a banking crisis is identified, and they also pick up the effects of shocks that are not directly related to the banking crises, such as the shock hitting the Finnish textile industry after the collapse of the Soviet union.…”

Section: Comparing Gdp and Productivitymentioning

confidence: 99%

A Crisis Not Wasted Institutional and Structural Reforms Behind Norway's Strong Macroeconomic Performance.

Steigum

Thøgersen

2013

SSRN Journal

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This paper draws the line between the Norwegian boom-bust cycle and crises in the late 1980s and early 1990s, the succeeding institutional and structural reforms and the strong macroeconomic performance and stability of the last two decades.The systemic banking crisis and speculative attack on the Norwegian krone in the early 1990s were the last in a series of blows to Norway's macroeconomic policy regime. In addition to the recession after 1988, the underlying growth potential of the Mainland economy was also weak, despite financial deregulation and the gains in competitiveness. The large oil price fall in the mid-1980s had demonstrated the risk of uncertain oil revenues as an important source of income to the government.The political awareness of an economic crisis paved the way for a series of structural reforms and changes in the macroeconomic policy regime. Some of these reforms were implemented quickly, such as a tax reform, an energy market reform and a new incomes policy framework. In 2001 a new framework for monetary and fiscal policy was put in place, involving a flexible exchange rate and inflation targeting, as well as a new fiscal policy rule designed to facilitate consumption smoothing and a build-up of a sovereign wealth fund. We discuss possible reasons why Norway's political system has been able to learn from previous policy failures and reach the necessary consensus, and determination, to implement institutional and structural reforms in economic policy. *This paper is forthcoming as a chapter in "Reform capacity and macroeconomic performance in the Nordic countries", ed. T.M. Andersen, M. Bergman and S.E.H. Jensen, Oxford University Press. We are grateful to Hans Tson Söderström for valuable comments.2

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“…Kaminsky and Reinhart (1999) and Rossi (1999) established a causal relationship between banking and currency crises and found that during recessions, banks typically suffer substantial losses, sometimes even to the extent of requiring costly government bailouts. Hoggarth, Reis and Saporta (2002) provide an extensive review of the fiscal and output losses incurred by bank crises for both developed and emerging economies. Over the period of 1992 -2002, 24 major crises studied indicated that losses averaged from 15 -20% of GDP and the restoration costs for distressed banks were much larger for emerging economies that for those with higher degrees of banking intermediation.…”

Section: Literature Reviewmentioning

confidence: 99%

How Bank Risk Profiles Affect Their Strength: An Assessment of Banks in the Asia-Pacific Region

Allen

Chandra²,

Yong³

2004

SSRN Journal

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This paper analyses bank relative riskiness by testing the sensitivity of AsiaPacific banks to overall market risk, global credit risk shocks, interest rate risk shocks and maturity risk shocks. The banks' risk profiles are categorised according to their capitalisation levels and functional degree of diversification. Our results indicate that highly capitalised banks yield higher average stock returns whilst functionally diversified banks have less volatile returns. Generally, banks that adopt capital adequacy guidelines and hold higher capital levels have greater protection from these risks. Functionally diversified banks are also more strongly positioned against system-wide shocks to the banking sector.JEL classification: F34, G12, G21

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Costs of Banking System Instability: Some Empirical Evidence

Cited by 188 publications

References 24 publications

Crisis Resolution and Bank Liquidity

Crisis Resolution and Bank Liquidity

A Crisis Not Wasted Institutional and Structural Reforms Behind Norway's Strong Macroeconomic Performance.

How Bank Risk Profiles Affect Their Strength: An Assessment of Banks in the Asia-Pacific Region

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