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Aftermath of Banking Crises


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  • Poonam Gupta


In this paper a simple optimizing model is developed to analyze the implications of a banking crisis. Banks are incorporated by assuming that they intermediate funds between firms and households. It is shown that when depositors perceive the quality of deposits to have deteriorated, they switch from deposits to cash. Because of the higher cost of liquidity, consumption, M2 and the M2 multiplier decline, interest rates on deposits and loans increase and output contracts. The findings of the paper match the key stylized facts of banking crises.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/96.

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Length: 25
Date of creation: 01 Jun 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/96

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Keywords: Banking; Economic models; banking crises; banking crisis; bank credit; banking sector; bank insolvency; bank runs; bank run; pre-crisis; capital mobility; banking distress; monetary authority; bank regulation; bank crises; disintermediation; deposit insurance; banking panics; currency crisis; financial liberalization; currency crises; bank panics; bank takes; banking sectors; banking system; bank soundness; deposit guarantees; minimum reserve requirement; banking industry; financial crisis; cross country experience; reserve ratio; credit boom; financial crises; bank asset; deposit guarantee; reserve requirement; bank insolvencies; balance of payments crisis; bank debt; payments crisis; bank defaults; causes of banking crises; banking panic; bank-firm relationships; bank lending;


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  1. Reinhart, Carmen & Ogaki, Masao, 1995. "Measuring intertemporal substitution: The role of durable goods," MPRA Paper 13690, University Library of Munich, Germany.
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Cited by:
  1. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Working Papers, Bank of Canada 03-1, Bank of Canada.
  2. Dobromil Serwa, 2008. "Larger crises cost more: impact of banking sector instability on output growth," Working Papers, Department of Applied Econometrics, Warsaw School of Economics 25, Department of Applied Econometrics, Warsaw School of Economics.
  3. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Working Papers, Bank of Canada 02-12, Bank of Canada.


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