Resolution of Banking Crises: The Good, the Bad, and the Ugly

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries.

Do financial crises erode potential output? Evidence from OECD inflation responses

“…Our definition of financial crises is derived from Laeven and Valencia (2010), who define a systemic banking crisis as ''significant signs of financial distress in the banking system'', accompanied by ''significant banking policy intervention measures Sweden (1991), Japan (1997, US (1988) and (2007), UK (2007), Germany (2008) and Spain (2008). We exclude those crises which the authors classify as ''borderline'' as it is less certain that these led to significant tightening in credit availability, with the following two exceptions: (1) Spain (2008), in light of the recent acceleration of the Spanish crisis culminating in the 2011 government restructuring plan (note also that Reinhart and Rogoff (2009) classify Spain as a systemic banking crisis), and (2) US (1988)- Bernanke and Lown (1991) and Bijapur (2010) both present evidence that the aftermath of the Savings and Loans crisis of the late 1980's was associated with a significant tightening in the availability of credit.…”

Bubbles and Crises: The Role of House Prices and Credit

“…Reinhart and Rogoff (2009a), Boyd et al (2005), Laeven and Valencia (2010), Cerra and Saxena (2008)). It has also been shown that crises preceded by credit booms are more costly than other crises, see Jorda et al (2013).…”

Measuring the Severity of a Banking Crisis and Finding Its Associated Factors: How Are the Factors Different for Simple and Severe Banking Crises?

“…We use Laeven and Valencia [5] as the source of data for severe banking crises. The severity of a crisis is determined by taking simple arithmetic average of the crisis-duration (in years) and the rank of percentage GDP loss (PGL).…”