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Resolving systemic financial crisis : policies and institutions

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  • Claessens,Constantijn A.
  • Klingebiel, Daniela
  • Laeven, Luc

Abstract

The authors analyze the role of institutions in resolving systemic banking crises for a broad sample of countries. Banking crises are fiscally costly, especially when policies like substantial liquidity support, explicit government guarantees on financial institutions’ liabilities, and forbearance from prudential regulations are used. Higher fiscal outlays do not, however, accelerate the recovery from a crisis. Better institutions—less corruption, improved law and order, legal system, and bureaucracy—do. The authors find these results to be relatively robust to estimation techniques, including controlling for the effects of a poor institutional environment on the likelihood of financial crisis and the size of fiscal costs. Their results suggest that countries should use strict policies to resolve a crisis and use the crisis as an opportunity to implement medium-term structural reforms, which will also help avoid future systemic crises.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3377.

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Date of creation: 01 Aug 2004
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Handle: RePEc:wbk:wbrwps:3377

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Related research

Keywords: Payment Systems&Infrastructure; Labor Policies; Fiscal&Monetary Policy; Financial Crisis Management&Restructuring; Banks&Banking Reform; Financial Crisis Management&Restructuring; Governance Indicators; National Governance; Banks&Banking Reform; Economic Conditions and Volatility;

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References

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  1. 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.
  2. Brock, Philip L, 2000. "Financial Safety Nets: Lessons from Chile," World Bank Research Observer, World Bank Group, vol. 15(1), pages 69-84, February.
  3. 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.
  4. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
  5. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  6. Yung Chul Park & Jong-Wha Lee, 2003. "Recovery and Sustainability in East Asia," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 275-320 National Bureau of Economic Research, Inc.
  7. Michael P. Dooley & Sujata Verma, 2003. "Rescue Packages and Output Losses Following Crises," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 125-186 National Bureau of Economic Research, Inc.
  8. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  9. Michael M. Hutchison, 2001. "A Cure Worse Than the Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs," NBER Working Papers 8305, National Bureau of Economic Research, Inc.
  10. Barry Eichengreen & Andrew K. Rose, 2003. "Does It Pay to Defend against a Speculative Attack?," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 61-86 National Bureau of Economic Research, Inc.
  11. Barry Eichengreen & Richard Portes, 1997. "Managing financial crises in emerging markets," Proceedings, Federal Reserve Bank of Kansas City, pages 193-225.
  12. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
  13. Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, July.
  14. Laeven, Luc & Klingebiel, Daniela & Kroszner, Randy, 2002. "Financial crises, financial dependence, and industry growth," Policy Research Working Paper Series 2855, The World Bank.
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Blog mentions

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  1. Reševanje krize po skandinavsko: »Slaba banka« in trg dela
    by d1joze in Damijan blog on 2009-02-06 08:37:00
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Cited by:
  1. 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.
  2. Rafael Repullo, 2004. "Policies For Banking Crises: A Theoretical Framework," Working Papers wp2004_0418, CEMFI.
  3. Demirguc-Kunt, Asli & Detragiache, Enrica, 2005. "Cross-country empirical studies of systemic bank distress : a survey," Policy Research Working Paper Series 3719, The World Bank.
  4. Davide Furceri & Aleksandra Zdzienicka-Durand, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Post-Print halshs-00491089, HAL.
  5. Viral V. Acharya & Thomas Cooley & Matthew Richardson & Ingo Walter, 2011. "Market Failures and Regulatory Failures : Lessons from Past and Present Financial Crises," Finance Working Papers 23273, East Asian Bureau of Economic Research.
  6. A. Karas & K. Schoors & G. Lanine, 2008. "Liquidity matters: Evidence from the Russian interbank market," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/520, Ghent University, Faculty of Economics and Business Administration.

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