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Resolving Bank Failures in Uganda: Policy Lessons from Recent Bank Failures

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  • Martin Brownbridge

Abstract

In 1998/99 four insolvent commercial banks were intervened and closed by the central bank in Uganda. One bank was closed promptly while the other three were all subject to some form of attempted open bank resolution before eventual closure. This article examines the lessons from this experience and concludes that, in general, prompt closure is preferable to open resolution. This is because the losses incurred by distressed banks are likely to be much greater than the estimates made by regulators or auditors prior to closure, while the prospects for recapitalisation by private sector shareholders are likely to be very limited at best. Open resolution entails serious dangers of moral hazard, which increase the eventual cost to depositors and taxpayers.

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  • Martin Brownbridge, 2002. "Resolving Bank Failures in Uganda: Policy Lessons from Recent Bank Failures," Development Policy Review, Overseas Development Institute, vol. 20(3), pages 279-291, July.
    • Handle: RePEc:bla:devpol:v:20:y:2002:i:3:p:279-291
    DOI: 10.1111/1467-7679.00171
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    Cited by:

    1. Pascaline Dupas & Sarah Green & Anthony Keats & Jonathan Robinson, 2014. "Challenges in Banking the Rural Poor: Evidence from Kenya's Western Province," NBER Chapters, in: African Successes, Volume III: Modernization and Development, pages 63-101, National Bureau of Economic Research, Inc.
    2. International Monetary Fund, 2005. "Uganda: Selected Issues and Statistical Appendix," IMF Staff Country Reports 2005/172, International Monetary Fund.
    3. Clarke, George R.G. & Cull, Robert & Fuchs, Michael, 2009. "Bank Privatization in Sub-Saharan Africa: The Case of Uganda Commercial Bank," World Development, Elsevier, vol. 37(9), pages 1506-1521, September.

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