Responding to Banking Crises: Lessons From Cross-Country Evidence
IMF Working Papers, January 1, 2010
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Bibliographic details
- Authors: Enrica Detragiache, Giang Ho
- Published: January 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451962239.001
Summary findings
- A common legacy of banking crises is a large increase in government debt, as fiscal resources are used to shore up the banking system.
- Based on evidence from a sample of 40 banking crises, crisis response strategies that commit more fiscal resources do not lower the economic costs of crises.
- Policies that are riskier for the government budget are associated with worse, not better, post-crisis performance.
- No evidence was found that endogeneity biases the results.
Identification and empirical approach
- The authors exploit a documented relationship between parliamentary political systems and the propensity to adopt bank rescue measures that are costly for the government budget.
- This relationship is used to instrument the policy response, addressing concerns of joint endogeneity.
- The instrumental-variable approach finds no evidence that endogeneity is a source of bias.
Policy implications
- Greater fiscal commitment to bank rescue measures does not necessarily improve post-crisis economic performance and may be associated with worse outcomes.
- Political-institutional context matters: parliamentary systems are more prone to adopt budget-costly bank rescue measures, implying that political structure influences crisis-response choices and fiscal exposure.
Key metadata and descriptors
- Authors: Enrica Detragiache, Giang Ho
- Date: January 1, 2010
- Sample: 40 banking crises
- Pages: 33
- Series: Working Paper No. 2010/018
- Volume: 2010
- Issue: 018
- DOI: https://doi.org/10.5089/9781451962239.001
- ISBN: 9781451962239
- ISSN: 1018-5941
- Subjects: Banking, Banking crises, Crisis management, Crisis resolution, Financial crises, Fiscal policy
- Keywords: bank rescue policy, bank support policy, bank-support policy, Banking crises, banking crisis cost, banking crisis policies, blanket government guarantee, countercyclical policy tool, Crisis management, crisis performance, Crisis resolution, crisis resolution policy, crisis response policy, Global, output growth, Policy index, policy measure, Policy response, Policy response index, resolution policy, response index, WP
Responding to Banking Crises: Lessons From Cross-Country Evidence — IMF Working Paper No. 2010/018