Resolving Systemic Financial Crises: Policies and Institutions

38 Pages Posted: 20 Apr 2016

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Daniela Klingebiel

World Bank - Policy Unit

Luc Laeven

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

Date Written: August 2004

Abstract

Claessens, Klingebiel, and Laeven analyze the role of institutions in resolving systemic banking crises for a broad sample of countries. Banking crises are fiscally costly, especially when policies like substantial liquidity support, explicit government guarantees on financial institutions' liabilities, and forbearance from prudential regulations are used. Higher fiscal outlays do not, however, accelerate the recovery from a crisis. Better institutions - less corruption, improved law and order, legal system, and bureaucracy - do. The authors find these results to be relatively robust to estimation techniques, including controlling for the effects of a poor institutional environment on the likelihood of financial crisis and the size of fiscal costs. Their results suggest that countries should use strict policies to resolve a crisis and use the crisis as an opportunity to implement medium-term structural reforms, which will also help avoid future systemic crises.

This paper - a product of the Financial Sector Operations and Policy Department - is part of a larger effort in the department to study financial crisis resolution.

Suggested Citation

Claessens, Stijn and Klingebiel, Daniela and Laeven, Luc A., Resolving Systemic Financial Crises: Policies and Institutions (August 2004). Available at SSRN: https://ssrn.com/abstract=625254

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Daniela Klingebiel

World Bank - Policy Unit ( email )

1818 H Street NW
Room MC 9-903
Washington, DC 20433
United States
202-473-7470 (Phone)
202-522-2031 (Fax)

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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