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Banking and currency crises and systemic risk: a taxonomy and review

  • George 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.chicagofed.org/digital_assets/publications/working_papers/1999/wp99_12.pdf
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    Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-99-12.

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    Date of creation: 1999
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    Handle: RePEc:fip:fedhwp:wp-99-12
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    1. Andrew Crockett, 1997. "Why is financial stability a goal of public policy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-22.
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    3. Reuven Glick & Andrew K. Rose, 1998. "Contagion and trade: why are currency crises regional?," Pacific Basin Working Paper Series 98-03, Federal Reserve Bank of San Francisco.
    4. 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.
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    6. 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.
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    8. 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.
    9. 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.
    10. Charles W. Calomiris & Gary Gorton, . "The Origins of Banking Panics: Models, Facts, and Bank Regulation," Rodney L. White Center for Financial Research Working Papers 11-90, Wharton School Rodney L. White Center for Financial Research.
    11. 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.
    12. Graciela L. Kaminsky & Sergio L. Schmukler, 1999. "What triggers market jitters: a chronicle of the Asian crisis," International Finance Discussion Papers 634, Board of Governors of the Federal Reserve System (U.S.).
    13. Craig Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings 633, Federal Reserve Bank of Chicago.
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    19. A. W. Coats, 1995. "Comment," History of Political Economy, Duke University Press, vol. 27(5), pages 157-161, Supplemen.
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    21. 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.
    22. 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.).
    23. 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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    25. 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.
    26. Goodhart, Charles & Delargy, P J R, 1998. "Financial Crises: Plus ca Change, Plus C'est La Meme Chose," International Finance, Wiley Blackwell, vol. 1(2), pages 261-87, December.
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    28. 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.
    29. 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.
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    31. repec:cup:cbooks:9780521770804 is not listed on IDEAS
    32. George G. Kaufman, 1998. "Central banks, asset bubbles, and financial stability," Working Paper Series WP-98-12, Federal Reserve Bank of Chicago.
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