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The Workout of Banking Crises: A Macroeconomic Perspective

Hans Gersbach
Swiss Federal Institute of Technology Zurich, (CER-ETH); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)

Jan Wenzelburger
University of Bielefeld - Department of Business Administration and Economics

May 2003

Abstract:
This paper provides a macroeconomic perspective for government interventions in banking crises. Such crises occur when a large number of banks fail to meet capital requirements or are insolvent. Using a macroeconomic model with financial intermediation, our analysis suggests that strict enforcement of capital-adequate rules suffices in prosperous periods. Capital requirements serve as an indicator for crises interventions in critical states which may require interest rate controls and restructuring of the banking industry. These policies can be reinforced by random bail-outs and temporary financial relief, with a large percentage of the costs being covered by current and future owners of banks.
banking crises, deposit insurance, banking regulation

Keywords: Financial intermediation, macroeconomic risks,

JEL Classifications: D41, E4, G2

Working Paper Series

Date posted: June 12, 2003 ; Last revised: June 23, 2003

Suggested Citation

Gersbach, Hans and Wenzelburger, Jan, The Workout of Banking Crises: A Macroeconomic Perspective (May 2003). Available at SSRN: http://ssrn.com/abstract=408380 or doi:10.2139/ssrn.408380

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Contact Information

Hans Gersbach (Contact Author) Swiss Federal Institute of Technology Zurich, (CER-ETH) ( email ) Zürichbergstrasse 18 Zurich 8092 Switzerland +41 44 632 82 80 (Phone) +41 44 632 18 30 (Fax)
Institute for the Study of Labor (IZA) P.O. Box 7240 D-53072 Bonn Germany
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 DE-81679 Munich Germany
Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom
Jan Wenzelburger University of Bielefeld - Department of Business Administration and Economics ( email ) P.O. Box 100131 D-33501 Bielefeld, NRW 33501 Germany +49 521 106 4835 (Phone) +49 521 106 6018 (Fax)