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A User's Guide to Banking Crises

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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.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number archive-36.

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Length: 91 pages
Date of creation: 2000
Date of revision:
Publication status: published in working papers series of Department of Economics, Monash University, Australia
Handle: RePEc:mos:moswps:archive-36

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Postal: Department of Economics, Monash University, Victoria 3800, Australia
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  1. Stephen D. Williamson, 1984. "Costly Monitoring, Loan Contracts and Equilibrium Credit Rationing," Working Papers 572, Queen's University, Department of Economics.
  2. 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 2085, The World Bank.
  3. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
  4. Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September.
  5. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises," IMF Working Papers 97/106, International Monetary Fund.
  6. 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.
  7. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  8. Freixas, Xavier & Rochet, Jean-Charles, 1998. "Fair pricing of deposit insurance. Is it possible? Yes. Is it desirable? No," Research in Economics, Elsevier, vol. 52(3), pages 217-232, September.
  9. Demirguc-Kunt, Asli & Detragiache, Enrica, 1997. "The determinants of banking crises : evidence from industrial and developing countries," Policy Research Working Paper Series 1828, The World Bank.
  10. Champ, B. & Snith, B.D. & Williamson, D.S., 1991. "Currency Elasticity and Banking Panics: Theory and Evidence," RCER Working Papers 292, University of Rochester - Center for Economic Research (RCER).
  11. Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 2004. "Is Fairly Priced Deposit Insurance Possible?," Finance 0411018, EconWPA.
  12. Demirguc-Kunt, Asli & Levine, Ross, 1995. "Stock market development and financial intermediaries : stylized facts," Policy Research Working Paper Series 1462, The World Bank.
  13. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
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