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Banking and Currency Crises and Systemic Risk: A Taxonomy and Review

  • G.G. Kaufman
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    Many countries have experienced banking and currency crises in recent years. Although these crises appear to share many common causes and consequences, they have generally been analysed by different sets of economists. This paper develops a common framework, applies this framework to analysing recent crises, evaluates the historical evidence, and suggests potential solutions. Governments are identified as one of the major causes of the crises through first providing poorly structured financial guarantees that both increase fragility and misallocate resources, then pursuing unstable macroeconomic policies that produce losses, and finally attempting to conceal the problems as long as possible before being forced to take corrective actions that, at least in the short run, often exacerbate the costs before restoring equilibrium.

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    File URL: http://www.dnb.nl/binaries/sr048_tcm46-146826.pdf
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    Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 48.

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    Length: 84 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:dnb:staffs:48
    Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
    Web page: http://www.dnb.nl/en/

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    1. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters? A chronicle of the Asian crisis," Policy Research Working Paper Series 2094, The World Bank.
    2. Andrew Crockett, 1997. "Why is financial stability a goal of public policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-36.
    3. Demirguc-Kunt, Asli & Levine, Ross, 1999. "Bank-based and market-based financial systems - cross-country comparisons," Policy Research Working Paper Series 2143, The World Bank.
    4. Richard J. Herring & Susan Wachter, 1999. "Real Estate Booms and Banking Busts: An International Perspective," Center for Financial Institutions Working Papers 99-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
    5. Bordo, Michael D. & Schwartz, Anna J., 1999. "Under what circumstances, past and present, have international rescues of countries in financial distress been successful?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 683-708, August.
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    8. 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.).
    9. George G. Kaufman, 1996. "Bank Failures, Systemic Risk, and Bank Regulation," Cato Journal, Cato Journal, Cato Institute, vol. 16(1), pages 17-45, Spring/Su.
    10. Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174 National Bureau of Economic Research, Inc.
    11. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
    12. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
    13. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-20.
    14. George J. Benston & George G. Kaufman, 1988. "Risk and solvency regulation of depository institutions: past policies and current options," Staff Memoranda 88-1, Federal Reserve Bank of Chicago.
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    17. Michael Mussa & Giovanni Dell'Ariccia & Barry J. Eichengreen & Enrica Detragiache, 1998. "Capital Account Liberalization; Theoretical and Practical Aspects," IMF Occasional Papers 172, International Monetary Fund.
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    20. George G. Kaufman, 1996. "Bank fragility: perception and historical evidence," Working Paper Series, Issues in Financial Regulation WP-96-18, Federal Reserve Bank of Chicago.
    21. repec:cup:cbooks:9780521770804 is not listed on IDEAS
    22. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
    23. Capie, Forrest, 1998. "Can There Be an International Lender-of-Last Resort?," International Finance, Wiley Blackwell, vol. 1(2), pages 311-25, December.
    24. George G. Kaufman, 1996. "Bank failures, systemic risk, and bank regulation," Working Paper Series, Issues in Financial Regulation WP-96-1, Federal Reserve Bank of Chicago.
    25. Catherine L. Mann, 1999. "Market Mechanisms to Reduce the Need for IMF Bailouts," Policy Briefs PB99-04, Peterson Institute for International Economics.
    26. Craig Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings 633, Federal Reserve Bank of Chicago.
    27. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
    28. Michael D. Bordo & Barry Eichengreen & Jongwoo Kim, 1998. "Was There Really an Earlier Period of International Financial Integration Comparable to Today?," NBER Working Papers 6738, National Bureau of Economic Research, Inc.
    29. Jeffrey A. Frankel & Sergio L. Schmukler, 1996. "Crisis, contagion, and country funds: effects on East Asia and Latin America," Proceedings, Federal Reserve Bank of San Francisco, pages 232-266.
    30. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    31. Myron Kwast & S. Passmore, 1999. "The Subsidy Provided by the Federal Safety Net: Theory and Evidence," Journal of Financial Services Research, Springer, vol. 16(2), pages 125-145, December.
    32. A. W. Coats, 1995. "Comment," History of Political Economy, Duke University Press, vol. 27(5), pages 157-161, Supplemen.
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