On the resolution of banking crises: theory and evidence
This paper reviews the merits of the various techniques used by authorities when resolving individual or widespread bank failures in developed and emerging market economies. In particular, the various banking crisis resolution techniques available to the authorities are classified and then compared with the techniques that have been used in practice, drawing on both the available evidence and our own analysis. With individual bank failures the authorities usually first seek a private sector solution. Any losses are passed on to existing shareholders, managers and sometimes uninsured creditors, and not to taxpayers. But policy options are more limited in systemwide crises. In most recent systemwide crises, early on central banks have provided liquidity to failing banks and governments have given blanket guarantees to depositors. In nearly all cases, investor panics have been quelled but at a cost to the budget and increasing the risk of future moral hazard. Open-ended central bank liquidity support seems to have prolonged crises, thus increasing rather than reducing the output costs to the economy. Bank restructuring has usually occurred through mergers, often government assisted, and some government capital injection or increase in control. Bank liquidations have been rare and creditors - including uninsured ones - have rarely made losses. In systemwide crises, resolution measures have been more successful in financial restructuring than in restoring banks' ongoing profitability or credit to the private sector. In most cases bank lending has remained subdued for years after a banking crisis.
|Date of creation:||Sep 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Bank of England, Threadneedle Street, London, EC2R 8AH|
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
Please 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.:
- Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis; Pitfalls in Financial Liberalization: Pitfalls in Financial Liberalization," IMF Occasional Papers 161, International Monetary Fund.
- Jeffrey J. Frankel and Andrew K. Rose., 1996.
"Currency Crashes in Emerging Markets: Empirical Indicators,"
Center for International and Development Economics Research (CIDER) Working Papers
C96-062, University of California at Berkeley.
- Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," NBER Working Papers 5437, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
- Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," Center for International and Development Economics Research (CIDER) Working Papers 233424, University of California-Berkeley, Department of Economics.
- Asli Demirguc-Kunt & Enrica Detragiache, 2000.
"Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation,"
Econometric Society World Congress 2000 Contributed Papers
1751, Econometric Society.
- Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
- Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Does deposit insurance increase banking system stability ? An empirical investigation," Policy Research Working Paper Series 2247, The World Bank.
- Mari Pangestu & Manggi Habir, 2002. "The Boom, Bust and Restructuring of Indonesian Banks," IMF Working Papers 02/66, International Monetary Fund.
- Ceyla Pazarbasioglu & Claudia H Dziobek, 1997. "Lessons From Systemic Bank Restructuring; A Survey of 24 Countries," IMF Working Papers 97/161, International Monetary Fund.
- Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
- Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004.
"Bank regulation and supervision: what works best?,"
Journal of Financial Intermediation,
Elsevier, vol. 13(2), pages 205-248, April.
- James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002. "Bank Regulation and Supervision: What Works Best?," NBER Working Papers 9323, National Bureau of Economic Research, Inc.
- Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
- De Luna-Martinez, J., 2000. "Management and Resolution of Banking Crises. Lessons from the Republic of Korea and Mexico," World Bank - Discussion Papers 413, World Bank.
- Glenn Hoggarth & Ricardo Reis & Victoria Saporta, 2001.
"Costs of banking system instability: some empirical evidence,"
Bank of England working papers
144, Bank of England.
- Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000.
"Inside the crisis : an empirical analysis of banking systems in distress,"
Policy Research Working Paper Series
2431, The World Bank.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
- Poonam Gupta & Asli DemirgÃ¼Ã§-Kunt & Enrica Detragiache, 2000. "Inside the Crisis; An Empirical Analysis of Banking Systems in Distress," IMF Working Papers 00/156, International Monetary Fund.
- Jack High (ed.), 2001. "Competition," Books, Edward Elgar Publishing, number 1751.
- Takeo Hoshi & Anil Kashyap, 1999.
"The Japanese Banking Crisis: Where Did It Come From and How Will It End?,"
NBER Working Papers
7250, National Bureau of Economic Research, Inc.
- Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
- Hoggarth, Glenn & Jackson, Patricia & Nier, Erlend, 2005. "Banking crises and the design of safety nets," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 143-159, January.
- P. Honohan, 2000.
"Banking System Failures in Developing and Transition Countries: Diagnosis and Prediction,"
Banca Monte dei Paschi di Siena SpA, vol. 29(1), pages 83-109, 02.
- Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
- Leslie E Teo & Charles Enoch & Carl-Johan Lindgren & TomÃ¡s J. T. BaliÃ±o & Anne Marie Gulde & Marc G Quintyn, 2000. "Financial Sector Crisis and Restructuring; Lessons from Asia: Lessons from Asia," IMF Occasional Papers 188, International Monetary Fund.
- Claessens, Stijn & Djankov, Simeon & Klapper, Leora, 1999. "Resolution of corporate distress - evidence from East Asia's financial crisis," Policy Research Working Paper Series 2133, The World Bank.
- George G. Kaufman & Steven A. Seelig, 2002. "Post-resolution treatment of depositors at failed banks: implications for the severity of banking crises, systemic risk, and too big to fail," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 27-41.
- Fry, Maxwell J & Sinclair, Peter, 2002. "Inflation, Debt, Fiscal Policy and Ambiguity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 157-63, April.
- 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.
- 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.
- Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, September.
When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:229. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Media Team)
If references are entirely missing, you can add them using this form.