From Systemic Banking Crises to Fiscal Costs: Risk Factors

By David Amaglobeli, Nicolas End, Mariusz Jarmuzek, Geremia Palomba

July 20, 2015

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David Amaglobeli, Nicolas End, Mariusz Jarmuzek, and Geremia Palomba. From Systemic Banking Crises to Fiscal Costs: Risk Factors, (USA: International Monetary Fund, 2015) accessed November 21, 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 examines the risk factors associated with fiscal costs of systemic banking crises using cross-country data. We differentiate between immediate direct fiscal costs of government intervention (e.g., recapitalization and asset purchases) and overall fiscal costs of banking crises as proxied by changes in the public debt-to-GDP ratio. We find that both direct and overall fiscal costs of banking crises are high when countries enter the crisis with large banking sectors that rely on external funding, have leveraged non-financial private sectors, and use guarantees on bank liabilities during the crisis. The better quality of banking supervision and the higher coverage of deposit insurance help, however, alleviate the direct fiscal costs. We also identify a possible policy trade-off: costly short-term interventions are not necessarily associated with larger increases in public debt, supporting the thesis that immediate intervention may be actually cost-effective over time.

Subject: Banking crises, Commercial banks, Financial crises, Financial institutions, Public debt, Systemic crises

Keywords: Banking crises, Banking crisis, Banking sector characteristic, Commercial banks, Contingent liabilities, Cost, Cost recovery, Direct cost, Financial crisis, Fiscal cost, Fiscal costs, Global, Resolution cost, Standard deviation, Systemic crises, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/166
Stock No:

WPIEA2015166
ISBN:

9781513529356
ISSN:

1018-5941

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