{
  "title": "The Use of Blanket Guarantees in Banking Crises",
  "publication": "IMF Working Papers, October 1, 2008",
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  "summary": "In episodes of significant banking distress or perceived systemic risk to the financial system, policymakers have often opted for issuing blanket guarantees on bank liabilities to stop or avoid widespread bank runs. In theory, blanket guarantees can prevent bank runs if they are credible.",
  "sections": [
    {
      "heading": "Overview and Research Question",
      "content": "- Authors: Luc Laeven, Fabian Valencia\n- Publication date: October 1, 2008\n- Series: Working Paper No. 2008/250\n- Issue: 250\n- Volume: 2008\n- Pages: 43\n- DOI: https://doi.org/10.5089/9781451871081.001\n- ISBN: 9781451871081\n- ISSN: 1018-5941\n- Sample: 42 episodes of banking crises\n- Subject / Keywords: Bank resolution, Banking, Blanket guarantee, Foreign liabilities, Liquidity; bank, guarantee, liquidity support, WP"
    },
    {
      "heading": "Key findings",
      "content": "- Blanket guarantees are successful in reducing liquidity pressures on banks arising from deposit withdrawals.\n- Banks' foreign liabilities appear virtually irresponsive to blanket guarantees.\n- Guarantees tend to be fiscally costly.\n- The positive association between guarantees and fiscal cost arises in large part because:\n  - guarantees tend to be employed in conjunction with extensive liquidity support, and\n  - guarantees are used when crises are severe."
    },
    {
      "heading": "Analysis and interpretation",
      "content": "- Theoretical premise:\n  - Blanket guarantees can prevent bank runs if they are credible.\n  - However, guarantees may increase moral hazard going forward.\n- Empirical evidence (sample-based):\n  - Effectiveness shown for domestic deposit withdrawal pressures.\n  - No measurable responsiveness observed for foreign liabilities."
    },
    {
      "heading": "Policy implications and considerations",
      "content": "- Use blanket guarantees to reduce immediate liquidity pressures from deposit withdrawals when credibility can be established.\n- Recognize that blanket guarantees may not affect foreign liabilities and therefore may not stem cross-border funding runs.\n- Anticipate substantial fiscal costs associated with guarantees, particularly when combined with extensive liquidity support or deployed in severe crises.\n- Factor in potential moral hazard effects when designing guarantee schemes and accompanying regulatory measures.\n\nSource: The Use of Blanket Guarantees in Banking Crises, Luc Laeven and Fabian Valencia, IMF Working Papers No. 2008/250, October 1, 2008 (43 pages).\n\n---\n\n Content in this bundle\n\n- wp08250\n  - wp08250 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp08250 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-use-of-blanket-guarantees-in-banking-crises-22411"
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    "Authors: Luc Laeven, Fabian Valencia",
    "Published: October 1, 2008",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451871081.001",
    "Authors: Luc Laeven, Fabian Valencia",
    "Publication date: October 1, 2008",
    "Series: Working Paper No. 2008/250",
    "Issue: 250",
    "Volume: 2008",
    "Pages: 43",
    "DOI: https://doi.org/10.5089/9781451871081.001",
    "ISBN: 9781451871081",
    "ISSN: 1018-5941",
    "Sample: 42 episodes of banking crises",
    "Subject / Keywords: Bank resolution, Banking, Blanket guarantee, Foreign liabilities, Liquidity; bank, guarantee, liquidity support, WP",
    "Blanket guarantees are successful in reducing liquidity pressures on banks arising from deposit withdrawals.",
    "Banks' foreign liabilities appear virtually irresponsive to blanket guarantees.",
    "Guarantees tend to be fiscally costly.",
    "The positive association between guarantees and fiscal cost arises in large part because:",
    "Theoretical premise:",
    "Empirical evidence (sample-based):",
    "Use blanket guarantees to reduce immediate liquidity pressures from deposit withdrawals when credibility can be established.",
    "Recognize that blanket guarantees may not affect foreign liabilities and therefore may not stem cross-border funding runs.",
    "Anticipate substantial fiscal costs associated with guarantees, particularly when combined with extensive liquidity support or deployed in severe crises.",
    "Factor in potential moral hazard effects when designing guarantee schemes and accompanying regulatory measures.",
    "**_wp08250**"
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