The Benefits and Costs of Intervening in Banking Crises

Author/Editor:

Edward J Frydl ; Marc G Quintyn

Publication Date:

August 1, 2000

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper provides a framework to assess the benefits and costs of intervening in a banking crisis. Intervention involves liquidity support and resolution actions. Principal benefits of intervention include avoiding panic and eliminating the economic costs of distorted incentives. Principal costs include fiscal costs and the economic costs of delay. The government’s main decision concerns the length of the resolution horizon—whether to adopt a deliberate or an aggressive resolution strategy. Dominant factors affecting net benefits are the relative size of the banking system and the loss liquidation rate on assets financed by bank loans.

Series:

Working Paper No. 2000/147

Subject:

Asset and liability management Asset valuation Banking Banking crises Commercial banks Financial crises Financial institutions Financial sector policy and analysis Moral hazard

English

Publication Date:

August 1, 2000

ISBN/ISSN:

9781451856729/1018-5941

Stock No:

WPIEA1472000

Pages:

78

Please address any questions about this title to publications@imf.org