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Dealing with bank distress: Insights from a comprehensive database

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  • Konrad Adler
  • Frederic Boissay

Abstract

We study the effectiveness of policy tools that deal with bank distress (i.e. central bank lending, asset purchases, bank liability guarantees, impaired asset segregation schemes). We present and draw on a novel database that tracks the use of such tools in 29 countries between 1980 and 2016. To keep "all else" equal, we test whether different policies explain differences in how countries fared through bank distress episodes that feature observationally similar initial macro–financial vulnerabilities. We find that, altogether, policy interventions help restore GDP growth and normalize the economy when bank distress follows a period of high cross–border exposures. Central bank lending and asset purchase schemes are especially effective in the first and second years of distress, respectively, and when bank distress follows low asset valuations, high bank leverage and weak bank performance. Overall, our results suggest that swift and broad–ranging policies can mitigate the adverse economic effects of bank distress.

Suggested Citation

  • Konrad Adler & Frederic Boissay, 2020. "Dealing with bank distress: Insights from a comprehensive database," BIS Working Papers 909, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:909
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    Cited by:

    1. Frederic Boissay & Stijn Claessens & Alan Villegas, 2020. "Tools for managing banking distress: historical experience and lessons for today," BIS Quarterly Review, Bank for International Settlements, December.
    2. Hardy, Bryan & Sever, Can, 2021. "Financial crises and innovation," European Economic Review, Elsevier, vol. 138(C).

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    More about this item

    Keywords

    bank distress; distress mitigation policy;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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