The Benefits and Costs of Intervening in Banking Crises

August 1, 2000

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Format: Chicago

Edward J Frydl, and Marc G Quintyn. The Benefits and Costs of Intervening in Banking Crises, (USA: International Monetary Fund, 2000) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides a framework to assess the benefits and costs of intervening in a banking crisis. Intervention involves liquidity support and resolution actions. Principal benefits of intervention include avoiding panic and eliminating the economic costs of distorted incentives. Principal costs include fiscal costs and the economic costs of delay. The government’s main decision concerns the length of the resolution horizon—whether to adopt a deliberate or an aggressive resolution strategy. Dominant factors affecting net benefits are the relative size of the banking system and the loss liquidation rate on assets financed by bank loans.

Subject: Asset and liability management, Asset valuation, Banking, Banking crises, Commercial banks, Financial crises, Financial institutions, Financial sector policy and analysis, Moral hazard

Keywords: Asia and Pacific, Asset loss, Asset valuation, Bank assets, Banking crises, Banking system, Banking system assets, Book value, Capital gain, Central bank, Commercial banks, Credit crunch, Deposit guarantee, Economic cost, Expected return, Fiscal cost, Medium of exchange, Moral hazard, Net benefit, Resolution costs, Risk premium, WP

Publication Details

Pages:

78
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/147
Stock No:

WPIEA1472000
ISBN:

9781451856729
ISSN:

1018-5941

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