The banking crisis management measures and their impact on the costs of banking crises
The banking crisis management measures and their impact on the costs of banking crises

Summary/Abstract: Laeven and Valencia (2008a) note that banking crises can be damaging and contagious, prompting for swift governments and regulatory authorities’ responses. Choosing the best way of resolving a banking crisis and accelerating economic recovery is still problematic. Most of the empirical studies (Hutchison and Noy (2005), Barrell et al. (2006), Demirgüç-Kunt et al. (2006), Caprio and Honohan (2008), Laeven and Valencia (2008a, 2010), Serwa (2010), etc.) focus on the output losses and fiscal costs of banking crises, however, there is surprisingly little empirical literature investigating the linkages between banking crisis management measures and costs of banking crises. The aim of this paper is to review the banking crisis management strategies and measures and to analyze the impact of banking crisis management measures on the costs of banking crises. The results of this study show that liquidity support is most often used crisis management measure in crisis containment phase and forbearance is a key component of banking crisis resolution plan. The results of this research show that lowering of reserve requirements, deposits freezes, banks holidays and bank closures tend to decrease the costs of banking crises. The results of this study suggest that output losses and fiscal costs of banking crises are larger when blanket guarantees to depositors and other creditors of banks, recapitalization and nationalizations of banks are imposed.

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