Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Use of Blanket Guarantees in Banking Crises

Contents:

Author Info

  • Luc Laeven
  • Fabian Valencia

Abstract

In episodes of significant banking distress or perceived systemic risk to the financial system, policymakers have often opted for issuing blanket guarantees on bank liabilities to stop or avoid widespread bank runs. In theory, blanket guarantees can prevent bank runs if they are credible. However, guarantee could add substantial fiscal costs to bank restructuring programs and may increase moral hazard going forward. Using a sample of 42 episodes of banking crises, this paper finds that blanket guarantees are successful in reducing liquidity pressures on banks arising from deposit withdrawals. However, banks'' foreign liabilities appear virtually irresponsive to blanket guarantees. Furthermore, guarantees tend to be fiscally costly, though this positive association arises in large part because guarantees tend to be employed in conjunction with extensive liquidity support and when crises are severe.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=22411
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/250.

as in new window
Length: 43
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/250

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Banking crisis; Moral hazard; Loan guarantees; Risk management; Liquidity; Bank credit; Financial systems; banking; liquidity support; banking system; deposit insurance; bank restructuring; banking crises; recapitalization; bank runs; financial institutions; subordinated debt; financial system; banking sector; financial sector; bank recapitalization; bank of thailand; small bank; systemic banking crises; foreign exchange; banking distress; systemic banking crisis; deposit insurance coverage; debt restructuring; bank of japan; deposit insurance scheme; bank deposits; savings bank; reserve requirements; connected lending; banking law; financial stability; domestic financial system; banks ? liabilities; loan classification; banks ? balance sheets; bank liabilities; bonds; banks guarantee fund; bank run; international financial statistics; interbank market; asset management company; savings deposits; banking practices; bank supervision; banks ? loans; bank lending; bank takes; bank involvement; bankrupt; central banking; banking sector fragility; problem bank; nominal exchange rate; banking institutions; bank claims; prudential regulation; bank insurance fund; financial intermediation; merchant bank; short term debt; bank crisis; currency ? crisis; bank of england; monetary authority; financial economics; stock market; financial dependence; banking industry; banking crisis resolution; excess liquidity; bank failures; bank closure; deposit freezes; banking sector problems; bank of korea; bank insurance; national bank; financial instability; banks ? loan; currency crises; systemic banking distress;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "Paper Tigers? A Model of the Asian Crisis," NBER Working Papers 6783, National Bureau of Economic Research, Inc.
  2. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
  3. Luis Ignacio Jácome, 2008. "Central Bank Involvement in Banking Crises in Latin America," IMF Working Papers 08/135, International Monetary Fund.
  4. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  5. Eric S. Rosengren & Joe Peek, 2000. "Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States," American Economic Review, American Economic Association, vol. 90(1), pages 30-45, March.
  6. Fabian Valencia & Luc Laeven, 2011. "The Real Effects of Financial Sector Interventions During Crises," IMF Working Papers 11/45, International Monetary Fund.
  7. Saunders, Anthony & Wilson, Berry, 1996. "Contagious Bank Runs: Evidence from the 1929-1933 Period," Journal of Financial Intermediation, Elsevier, vol. 5(4), pages 409-423, October.
  8. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective deficits and the Asian currency crisis," Working Paper Series WP-98-5, Federal Reserve Bank of Chicago.
  9. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
  10. Joe Peek & Eric S. Rosengren, 1996. "The International Transmission of Financial Shocks: The Case of Japan," Boston College Working Papers in Economics 357, Boston College Department of Economics.
  11. Michael Klein & Joe Peek & Eric Rosengren, 2000. "Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit," NBER Working Papers 7845, National Bureau of Economic Research, Inc.
  12. Martin Schneider & Aaron Tornell, 2000. "Balance SHeet Effects, Bailout Guarantees and Financial Crises," NBER Working Papers 8060, National Bureau of Economic Research, Inc.
  13. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises," IMF Working Papers 10/146, International Monetary Fund.
  14. Dell''Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram G, 2005. "The Real Effect of Banking Crises," CEPR Discussion Papers 5088, C.E.P.R. Discussion Papers.
  15. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 51-82, 04.
  16. Mariassunta Giannetti & Andrei Simonov, 2009. "On the Real Effects of Bank Bailouts: Micro-Evidence from Japan," Working Papers 2009.103, Fondazione Eni Enrico Mattei.
  17. Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, vol. 1(1), pages 31-63, September.
  18. Klingebiel, Daniela & Kroszner, Randy & Laeven, Luc & van Oijen, Pieter, 2001. "Stock market responses to bank restructuring policies during the East Asian crisis," Policy Research Working Paper Series 2571, The World Bank.
  19. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  20. Fatih Ozatay & Guven Sak, 2003. "Banking Sector Fragility and Turkey’s 2000–01 Financial Crisis," Working Papers 0308, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  21. Luis Ignacio Jácome, 2004. "The Late 1990's Financial Crisis in Ecuador," IMF Working Papers 04/12, International Monetary Fund.
  22. Kroszner, Randall S. & Laeven, Luc & Klingebiel, Daniela, 2007. "Banking crises, financial dependence, and growth," Journal of Financial Economics, Elsevier, vol. 84(1), pages 187-228, April.
  23. Frederic S. Mishkin, 2000. "Lessons from the Asian Crisis," NBER Working Papers 7102, National Bureau of Economic Research, Inc.
  24. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  25. Ashoka Mody & Se-Jik Kim, 2004. "Managing Confidence in Emerging Market Bank Runs," IMF Working Papers 04/235, International Monetary Fund.
  26. Martin Schneider & Aaron Tornell, 2004. "Balance Sheet Effects, Bailout Guarantees and Financial Crises," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 883-913.
  27. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
  28. Joe Peek & Eric S. Rosengren, 1999. "Japanese banking problems: implications for lending in the United States," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 25-36.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:08/250. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.