## A Balance Sheet Approach to Financial Crisis

_IMF Working Papers, December 1, 2002_

## Source details

**Canonical URL:** [A Balance Sheet Approach to Financial Crisis](https://www.imf.org/en/publications/wp/issues/2016/12/30/a-balance-sheet-approach-to-financial-crisis-16167)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/a-balance-sheet-approach-to-financial-crisis-16167/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/a-balance-sheet-approach-to-financial-crisis-16167/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/a-balance-sheet-approach-to-financial-crisis-16167/bundle-manifest.json)

## Bibliographic details
- Authors: Brad Setser, Nouriel Roubini, Christian Keller, Mark Allen, Christoph B. Rosenberg
- Published: December 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451957150.001

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### Analytical framework
- Lays out an analytical framework for understanding crises in emerging markets based on examination of stock variables in:
  - the aggregate balance sheet of a country, and
  - the balance sheets of its main sectors (assets and liabilities).
- Focuses on risks created by:
  - maturity mismatches,
  - currency mismatches, and
  - capital structure mismatches.
- Draws attention to vulnerabilities created by debts among residents, particularly debts denominated in foreign currency.
- Explains transmission: problems in one sector can spill over into other sectors and eventually trigger an external balance of payments crisis.

### Key findings and thematic emphases
- Emphasizes the importance of analyzing stock (balance sheet) variables rather than only flow measures for crisis diagnosis.
- Identifies specific sources of vulnerability:
  - currency-denominated debt held by residents,
  - maturity mismatches (short-term liabilities versus longer-term assets),
  - unfavorable capital structure (e.g., reliance on short-term or foreign-currency funding).
- Highlights cross-sector spillovers as a mechanism by which sectoral problems escalate into broader external crises.

### Policy analysis and recommendations
- Discusses the potential of macroeconomic policies to mitigate the cost of a balance-sheet-driven crisis.
- Considers the role of official intervention in crisis mitigation and cost reduction.
- Implicit policy priorities based on the framework:
  - monitor and manage currency and maturity mismatches across sectors;
  - address resident foreign-currency indebtedness vulnerabilities;
  - strengthen balance-sheet resilience to limit spillovers across sectors.

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## Content in this bundle

- **Annex I**
  - [Annex I (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2002/_wp02210.pdf.md){rel="alternate" type="text/markdown"}
  - [Annex I (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2002/_wp02210.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/a-balance-sheet-approach-to-financial-crisis-16167_