Inside the Crisis : An Empirical Analysis of Banking Systems in Distress
Much of the substantial literature on banking crises, focuses on early warning indicators. The authors look at what happens to the economy, and the banking sector after a banking crisis breaks out. Much of the theory of banking crises assigns a cen...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/08/693219/inside-crisis-empirical-analysis-banking-systems-distress http://hdl.handle.net/10986/19812 |
| Summary: | Much of the substantial literature on
banking crises, focuses on early warning indicators. The
authors look at what happens to the economy, and the banking
sector after a banking crisis breaks out. Much of the theory
of banking crises assigns a central role to depositor runs,
with vulnerability to runs viewed as a basic characteristic
of banks as financial intermediaries. But banking systems
can be financially distressed, even when depositors do not
withdraw their deposits, if other bank creditors rush for
the exit, or if banks become insolvent. Are contemporary
banking crises characterized by large declines in deposits?
The authors find that contemporary banking crises are not
accompanied by declines in aggregate bank deposits, and
credit does not fall relative to output, but the growth of
both deposits, and credit does slow down substantially.
Output recovery begins the second year after the crisis, and
is not led by a resumption of credit growth. Instead, banks
(including the stronger banks) reallocate their asset
portfolio away from loans. This suggests that protecting
deposits during a banking crisis, may not be enough to
protect bank credit, as lack of usable collateral, and poor
borrower creditworthiness, discourage banks from lending.
However, protecting bank credit may not be a priority right
after a crisis, as the real economy can rebound without it,
at least while there is substantial under-used capacity. |
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