{
  "title": "Banks’ Precautionary Capital and Persistent Credit Crunches",
  "publication": "IMF Working Papers, October 1, 2008",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410",
  "overlayPath": "/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/index.md",
  "summary": "Periods of banking distress are often followed by sizable and long-lasting contractions in bank credit. They may be explained by a declined demand by financially impaired borrowers (the conventional financial accelerator) or by lower supply by capital-constrained banks, a \"credit crunch\".",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- Periods of banking distress are often followed by sizable and long-lasting contractions in bank credit.\n- Contractions may be driven by:\n  - declined demand by financially impaired borrowers (the conventional financial accelerator), or\n  - lower supply by capital-constrained banks, a \"credit crunch\".\n- The paper develops a bank model to study credit crunches and their real effects.\n- In the model, banks maintain a precautionary level of capital that serves as a smoothing mechanism to avert disruptions in the supply of credit when hit by small shocks.\n- For larger shocks, highly persistent credit crunches may arise even when the impulse is a one time, non-serially correlated event."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- The model justifies the use of public funds to recapitalize banks following a significant deterioration in their capital position.\n- Precautionary capital held by banks can mitigate short-run disruptions but may be insufficient against large shocks, motivating policy intervention."
    },
    {
      "heading": "Subject, keywords, and authorship",
      "content": "- By Fabian Valencia\n- Date: October 1, 2008\n- Subject: Bank credit, Banking, Credit, Loans, Solvency\n- Keywords: credit crunch, financial structure, precautionary motive, WP\n\n---\n\n Content in this bundle\n\n- wp08248\n  - wp08248 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp08248 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/bundle-manifest.json)",
    "Authors: Fabian Valencia",
    "Published: October 1, 2008",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451871067.001",
    "Periods of banking distress are often followed by sizable and long-lasting contractions in bank credit.",
    "Contractions may be driven by:",
    "The paper develops a bank model to study credit crunches and their real effects.",
    "In the model, banks maintain a precautionary level of capital that serves as a smoothing mechanism to avert disruptions in the supply of credit when hit by small shocks.",
    "For larger shocks, highly persistent credit crunches may arise even when the impulse is a one time, non-serially correlated event.",
    "The model justifies the use of public funds to recapitalize banks following a significant deterioration in their capital position.",
    "Precautionary capital held by banks can mitigate short-run disruptions but may be insufficient against large shocks, motivating policy intervention.",
    "By Fabian Valencia",
    "Date: October 1, 2008",
    "Subject: Bank credit, Banking, Credit, Loans, Solvency",
    "Keywords: credit crunch, financial structure, precautionary motive, WP",
    "**_wp08248**"
  ],
  "related": [
    {
      "title": "_wp08248",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2008/_wp08248.pdf",
      "summary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2008/_wp08248.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2008/_wp08248.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/index.md",
    "json": "/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/index.json",
    "bundleManifest": "/en/publications/wp/issues/2016/12/31/banks-precautionary-capital-and-persistent-credit-crunches-22410/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-17T09:55:53.816Z"
}