Resolution of Banking Crises: The Good, the Bad, and the Ugly

IMF Working Papers, June 1, 2010

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Resolution of Banking Crises: The Good, the Bad, and the Ugly

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Bibliographic details

• Authors: Luc Laeven, Fabian Valencia
• Published: June 1, 2010
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781455201297.001

Overview and dataset

• Presents a new database of systemic banking crises for the period 1970-2009.
• Paper type: IMF Working Paper.
• Authors: Luc Laeven, Fabian Valencia.
• Date: June 1, 2010.
• Pages: 35.
• Volume: 2010.
• Issue: 146.
• Series: Working Paper No. 2010/146.
• DOI: https://doi.org/10.5089/9781455201297.001.
• Stock No: WPIEA2010146.
• ISBN: 9781455201297.
• ISSN: 1018-5941.

Key findings

• There are many commonalities between recent and past crises in terms of underlying causes and policy responses.
• Important differences exist in the scale and scope of interventions between recent and past crises.
• Direct fiscal costs to support the financial sector were smaller in the recent crisis as a consequence of:
  • swift policy action;
  • significant indirect support from expansionary monetary and fiscal policy;
  • the widespread use of guarantees on liabilities;
  • direct purchases of assets.
• While these policies reduced the real impact of the current crisis, they have:
  • increased the burden of public debt;
  • increased the size of government contingent liabilities;
  • raised concerns about fiscal sustainability in some countries.

Subjects and keywords

• Subject: Banking, Banking crises, Financial crises, Liquidity, Systemic crises.
• Keywords: asset, bank, banking crisis, crisis, financial institution, WP.

Summary conclusions for policymakers

• Rapid policy interventions combined with indirect support (expansionary monetary and fiscal policy), guarantees on liabilities, and asset purchases can limit the immediate real impact of systemic banking crises.
• Such interventions, however, carry fiscal trade-offs by increasing public debt burdens and enlarging government contingent liabilities, which can compromise fiscal sustainability in some countries.

Source: IMF Working Paper "Resolution of Banking Crises: The Good, the Bad, and the Ugly" by Luc Laeven and Fabian Valencia (June 1, 2010).

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