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

36 Pages Posted: 29 Jun 2010

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Fabián Valencia

International Monetary Fund (IMF)

Date Written: June 2010

Abstract

This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries.

Keywords: Banking crisis, Debt burden, Global Financial Crisis 2008-2009, Gross domestic product, Fiscal sustainability, Fiscal policy, Monetary policy

Suggested Citation

Laeven, Luc A. and Valencia, Fabian V., Resolution of Banking Crises: The Good, the Bad, and the Ugly (June 2010). IMF Working Papers, Vol. , pp. 1-35, 2010. Available at SSRN: https://ssrn.com/abstract=1632145

Luc A. Laeven (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Fabian V. Valencia

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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