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A User's Guide to Banking Crises

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  • John H. Boyd

    (University of Minnesota)

  • Pedro Gomis-Porqueras

    (School of Accounting, Economics and Finance, Deakin University)

  • Sungkyu Kwak

    (School of Business, Washburn University)

  • Bruce David Smith

    (University of Texas at Austin
    Federal Reserve Bank of Cleveland)

Abstract

The last 25 years have seen the resurgence of a problem of long historical standing: banking crises. While the general presence of a "banking system safety net" has typically prevented these modern crises from turning into the kinds of banking panics observed historically, they are nonetheless events of great significance. Caprio and Klingebiel (1997) identify 86 separate episodes of large scale bank insolvency or worse that have occurred since 1974. And, many of these episodes are of staggering enormity. For example, in the early 1980s, Argentina and Chile spent amounts equaling 55% and 42% of their GDP, respectively, on banking system bailouts. And, current estimates are that, in Thailand today, 60-70% of all loans are non-performing.1 The frequency and severity of these crises makes it essential to pose four questions: what causes banking crises?; what can be done to prevent them or, at least, to mitigate their severity?; what are the macroeconomic consequences of banking crises, and of the large bailouts that are often associated with them?; what are the social costs associated with the occurrence of a banking crisis? and what social costs or benefits are derived by injecting resources into banking system bailouts? This paper is an attempt to address these questions.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 15 (2014)
Issue (Month): 2 (November)
Pages: 800-892

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Handle: RePEc:cuf:journl:y:2014:v:15:i:2:boyd:gomis:kwak:smith

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  1. Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 2004. "Is Fairly Priced Deposit Insurance Possible?," Finance, EconWPA 0411018, EconWPA.
  2. Williamson, Stephen D, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(1), pages 135-45, February.
  3. Xavier Freixas & Jean Charles Rochet, 1995. "Fair pricing of deposit insurance. Is it possible? Yes. Is it desirable? No," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 130, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1995.
  4. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Market Development and Financial Intermediaries: Stylized Facts," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(2), pages 291-321, May.
  5. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series, The World Bank 2059, The World Bank.
  6. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises," IMF Working Papers, International Monetary Fund 97/106, International Monetary Fund.
  7. Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Monitoring banking sector fragility : a multivariate logit approach with an application to the 1996-97 banking crises," Policy Research Working Paper Series, The World Bank 2085, The World Bank.
  8. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  9. Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, Elsevier, vol. 18(2), pages 159-179, September.
  10. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 4(4), pages 335-344, December.
  11. Champ, B. & Smith, B.D., 1991. "Currency Elasticity and Banking Panics: theory and Evidence," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers, University of Western Ontario, The Centre for the Study of International Economic Relations 9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
  12. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  13. Demirguc-Kunt, Asli & Detragiache, Enrica, 1997. "The determinants of banking crises : evidence from industrial and developing countries," Policy Research Working Paper Series, The World Bank 1828, The World Bank.
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