The Use of Blanket Guarantees in Banking Crises
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
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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/250.Length: 115
Date of creation: 01 Oct 2008
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Handle: RePEc:imf:imfwpa:08/250
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Related research
Keywords: Banking crisis; Moral hazard; Loan guarantees; Risk management; Liquidity; Bank credit; Financial systems;Other versions of this item:
- Laeven, Luc & Valencia, Fabián, 2012. "The use of blanket guarantees in banking crises," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1220-1248.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-01 (All new papers)
- NEP-BAN-2008-12-01 (Banking)
- NEP-BEC-2008-12-01 (Business Economics)
- NEP-RMG-2008-12-01 (Risk Management)
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References listed on IDEASPlease 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.:
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Davide, Furceri & Aleksandra, Zdzienicka, 2010.
"Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables,"
MPRA Paper
22078, University Library of Munich, Germany.
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- Davide Furceri & Aleksandra Zdzienicka, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Working Papers 1014, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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- Das, Debasish Kumar, 2012. "Determinants of current account imbalances in the global economy: A dynamic panel analysis," MPRA Paper 42419, University Library of Munich, Germany.
- Brahim Guizani & Wako Watanabe, 2010. "The Deposit Insurance and the Risk-Shifting Incentive Evidence from the Blanket Deposit Insurance in Japan," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-004, Keio/Kyoto Joint Global COE Program.
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- Christopher, Gandrud, 2011. "Competing risks analysis and deposit insurance governance convergence," MPRA Paper 36087, University Library of Munich, Germany.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
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