The denominator is computed as the sum of demand deposits (line 24), other deposits (line 25), and liabilities to nonresidents (line 26). uuid:eb4d54fd-1530-47e7-93e0-277955bda08a Agartala, November 6, 2022. 0000005741 00000 n startxref The database on banking crises episodes is further complemented with dates for sovereign debt and currency crises during the same period. Alternative Dating Methodology for Selected CrisesNotes: Solid vertical lines denote the year before two conditions are met: negative real GDP growth and a slowdown in nominal credit growth (that is, crisis dates per the alternative dating methodology). The data show some striking differences in policy responses between advanced and emerging economies as well as many similarities between past and ongoing crises. Sturzenegger, Federico, and Jeromin Zettelmeyer, 2006, Debt Defaults and Lessons from a Decade of Crises (Cambridge: MIT Press). Table 4 shows the median values for the outcome variables across all episodes reported in our database, over 19702011. Some crises are characterized by the collapse of an important fraction of the banking system (as was the case in Indonesia in the late 1990s), while in other crises, regulatory forbearance and government support keeps most banks alive without leading to significant bank closures (as was the case in Argentina in 2001). ydV?X>xlg&d:mHgSi5]=dg3b02}%PB%TC;Rldr!ZVN^\o.leT]4mvb?H We now examine how countries coped with the banking crises we have identified through our methodology. A tag already exists with the provided branch name. The advantage of the systemic banking crisis database of Laeven and Valencia (2018) over alternative definitions is that by setting objective quantitative thresholds at high levels to characterize banking losses and policy intervention, one avoids the classification of non-systemic events or precautionary measures as systemic banking crisis. %PDF-1.4 % This Time is Different: Eight Centuries of Financial Folly. By the same logic used to construct an alternative definition of a crisis based on declines in credit growth and real GDP, we define the end of a crisis as the year before both real GDP growth and real credit growth are positive for at least two consecutive years. For crises before 2007, the list of borderline cases is also small and includes Brazil 1990, Argentina 1995, Czech Republic 1996, Philippines 1997, and United States 1988. The data show some striking differences in policy responses between advanced and emerging economies as well as many similarities between past and ongoing crises. Therefore, we consider a sufficient condition for a crisis episode to be deemed systemic when either (i) a country's banking system exhibits significant losses resulting in a share of nonperforming loans (NPLs) above 20 percent or bank closures of at least 20 percent of banking system assets or (ii) fiscal restructuring costs of the banking sector are sufficiently high, exceeding 5 percent of GDP. They exclude foreign claims by banks and nonbank financial institutions. Output losses in advanced and emerging economies are larger in part because with deeper financial systems, a banking crisis is more disruptive. Using this approach, we identify 66 episodes of sovereign debt crisis and debt restructuring during the period 19702011, of which three episodes during 20082011. Fiscal costs have reached very high levels in Iceland and Ireland in part because of the relatively large size of the financial systems in these economies, amounting to multiples of GDP. Google Scholar. The starting dates for the recent crises are as follows: the United States and the United Kingdom start in 2007, Nigeria in 2009, and all the other cases in 2008. It is sufficient because a banking crisis may well result in the collapse of the banking sector without any government intervention. Alternatively, Laeven and Valencia (2010) and Claessens and others (2011) perform comparisons between past and recent crises. Policy interventions are defined as: In the BFFS Project database, we mark a banking crisis using by two types of events using the definition in Reinhart and Rogoff (2009), which are: To our means, only a combination of systemic and banking crisis in the BFFS Banking Crisis Database is admissible to mark the event as a crisis. Sandri, Damiano, and Fabin Valencia, Forthcoming, Financial Crises and Recapitalizations, Journal of Money, Credit, and Banking. Relative to these and other papers, the main value added of our study is the dating of banking crises and the documentation of policy responses during such crises. 0000023260 00000 n This paper updates the database on systemic banking crises presented in Laeven and Valencia (2008, 2013). Costliest Banking Crises Since 1970Source: Authors calculations. The success of each technique will crucially depend on the credibility and creditworthiness of the government. The recent global financial crisis has given rise to the largest wave of banking crises seen since the Great Depression. SYSTEMIC BANKING CRISES DATABASE 229 signicant losses resulting nonperformingloans (NPLs) above 20 percent bankclosures least20 percent bankingsystem assets (ii)scal restructuring costs bankingsector sufcientlyhigh, exceeding GDP.Additional criteria could ourdating approach. Banking crises disrupt the supply of credit (Bernanke and Gertler, 1987, Van Den Heuvel, 2006, Valencia, forthcoming, and others) and these disruptions to the supply of credit can have important real effects because some borrowers cannot substitute bank loans with alternative funding sources (Peek and Rosengren, 1997; Ashcraft, 2005; Laeven and Valencia, 2013, and others). The database covers the universe of systemic banking crises for the period 1970-2007, with detailed data on crisis containment and resolution policies for 42 crisis episodes, and also includes data on the timing of currency crises and sovereign debt crises. Kroszner, Randall, Luc Laeven, and Daniela Klingebiel, 2007, Banking Crises, Financial Dependence, and Growth, Journal of Financial Economics, Vol. hUmL[U~{{zK)al/YkK1"S`i03c~BK&lGc3 _SH gaG9By} 1`kPTP.hh`68M>{F7&nelN|IoQ( R7\`P[BEzxiF?^;pw]uWU7m F8~g?5?Tu|}vbEG;S7oQz]`YvoxbF[_TZhbkzj] 3\,37Rob^jiL8,{:&av|_!J3>}wJ0aZMfVrf. Z`o&@pd}MuywWTR6%QlR1hQ\]K)cRL3# Cp+oJNL-Or;f{^,Ebi;8V.U+&Yt.!nHrW!I`c`9:w];]RU-U?Z-kAD/1_yJpC\5Yt)R!v*yNh$l\SkJx9#SF]FQGC9OG0)(naa{1ZtV#IXYV%h)xsY The closure, merging, takeover, or large scale government assistance of an important financial institution (or group of institutions) that marks the start of a string of similar outcomes for other financial institutions. The paper contributes to a large literature on the causes, consequences, and resolution of financial crises, including Kaminsky and Reinhart (1999), Caprio, Klingebiel, Laeven, and Noguera (2005), Laeven and Valencia (2008), Reinhart and Rogoff (2009), Schularick and Taylor (2012), Gourinchas and Obstfeld (2012), and others. Researchers at the IDOS regularly publish in relevant journals. Greece restructured its public debt in the first half of 2012, which yields one additional sovereign debt crisis case for the year 2012. In essence, by looking at declines in credit growth in conjunction with negative GDP growth, we look for evidence of the two main implications of banking crises. The effects of the crises are still lingering and in many cases the crisis is still ongoing. We also report end dates for each crisis, except for recent crises where our condition for determining the end of a crisis is not (yet) met.Footnote 19 We also report the peak level of NPLs, over the period [T, T+5], where T is the starting year of the crisis. Figure 4 presents the number of banking crises that start in a given year, showing a marked pickup in crisis activity in the early 1980s. It proposes a methodology to date banking crises based on policy indices, and examines the robustness of this approach. In all cases, we truncate the duration of a crisis at five years, starting from the first year of the crisis. Fiscal Costs Relative to GDP and Financial System AssetsSource: Authors calculations. Figure 7 reports the 10 costliest crises in terms of fiscal costs, increases in public debt, and output losses. 0000047358 00000 n Liquidity support: indicates liquidity support from the central bank, measured as the ratio of central bank claims on deposit money banks (line 12 in IFS) and liquidity support from the Treasury to total deposits and liabilities to nonresidents. There likely are countries not shown that had smaller crises since the late 1970s. 271 63 It includes all countries that experienced banking crises for which information was available. For development purposes, just download the project directory in your computer, or feel free to fork the project. 0000003115 00000 n Google Scholar. Bank runs that lead to the closure, merging, or takeover by the public sector of one or more financial institutions; and, if there are no runs. Book More research is needed to better understand the tradeoffs involved and to establish causality. To avoid labeling a nonsystemic event or the preemptive use of some of these policies as a systemic banking crisis, we require that at least three measures have been put in place. 0000060734 00000 n At the same time, we collect information on outcomes of banking crises. Initially, a country's policy options are limited to those policies that do not rely on the formation of new institutions or complex new mechanisms. fiscal costs, output losses, and increases in public debt). Indeed, as shown in Table 5, the market valuation of financial institutions (as of end-2010) indicated in many cases still a sizable gap between the market and book value of banks.Footnote 21 While overshooting in stock prices may be partly driving these gaps, they can also be interpreted as suggesting that some banks may have sizable capital shortfalls. In total, we count 147 banking crises since 1970, of which 13 are borderline events, including those reported in Table 1. Municipal administrator, budgeting veteran, database & spreadsheet aficionado, finance & economic analyst, writer, researcher, teacher 5d Banking crises 0 However, we do not infer a causal link when interpreting these output losses. Indeed, the correlation between this series of output losses and the one under our baseline methodology is around 90 percent. We also update our dating of sovereign debt and currency crises. The remainder of the paper is organized as follows. Here the prior availability of the necessary legal powers is critical, given the incentive for bank insiders to hang on, as well as the customary cognitive gaps causing insiders to deny the failure of their bank. Direct fiscal costs include fiscal outlays committed to the financial sector from the start of the crisis up to end-2011.Footnote 14 The increase in public debt is measured in percent of GDP over [T1, T+3], where T is the starting year of the crisis.Footnote 15 Output losses are computed as deviations of actual GDP from its trend.Footnote 16. Most complex of all are the cases where disruption of banking is part of a wider financial and macroeconomic turbulence. The paper also presents information on the costs and policy responses associated with banking crises. This is based starting from the data in Reinhart and Rogoff (2009). The database includes all systemic banking, currency, and . Systemic banking crisis reflects the nationwide banking crisis which its impact spreads to the whole banking sector. For the recent episodes, where a five-year window may not be available yet, the peak is computed over the period [T, latest data available]. This paper updates the database on systemic banking crises presented in Laeven and Valencia (2013a). Bank restructuring costs: defined as gross fiscal outlays directed to the restructuring of the financial sector, with the most important component being recapitalization costs. As a result, the central banks of some euro area countries (notably Germany and Luxembourg) had already large precrisis levels of claims on the financial sector. In contrast, fiscal costs are larger in developing and emerging economies, especially when expressed relative to financial system assets instead of GDP, to account for differences in the relative size of financial systems.Footnote 20 Similarly, liquidity pressures (as measured by peak liquidity support relative to deposits and foreign liabilities) and deterioration in loan quality (as measured by peak share of NPLs) tend to be more severe in developing and emerging economies than in advanced economies, although only the latter difference is statistically significant. 0000056114 00000 n Once containment measures have been put in place, governments face the long-run challenge of restoring solvency in the banking sector. 102, No. It is important to note that they reflect the total impact of the crisis, including any feedback effects and other factors contemporaneous to the banking crisis. by Patrick Honohan and Luc Laeven (Cambridge: Cambridge University Press), pp. Following DellAriccia and others (2012), we define credit boom years as those during which the deviation of credit-to-GDP ratio relative to its trend is greater than 1.5 times its historical standard deviation and its annual growth rate exceeds 10 percent, or years during which the annual growth rate of the credit-to-GDP ratio exceeds 20 percent. The data show that fiscal costs associated with banking crises can be substantial and that output losses are large. The stock of credit may decline with a delay and may decline more slowly than GDP. Table A1 shows individual country-level data. B This database covers the universe of systemic banking crises for the period 1970-2009, and also includes data on the resolution and fiscal and economic costs of banking crises. A country-specific cubic trend is computed over the preceding 10-year period. 0000059290 00000 n 106-102 (text), 113 Stat. - 185.12.150.98. For these reasons, the dating of banking crises has traditionally relied primarily on the identification of events or subjective criteria to determine when a banking crisis takes place (for example, Caprio and Klingebiel, 1996; Caprio, Klingebiel, Laeven, and Noguera, 2005; and Reinhart and Rogoff, 2009). Systemic Banking Crises: A New Database; by Luc Laeven and Fabian Valencia; IMF Working Paper 08/224; November 1, 2008. However, wherever data on recoveries were available we report also net fiscal costs. These larger output losses are to some extent driven by deeper banking systems, which makes a banking crisis more disruptive (Kroszner, Laeven, and Klingebiel, 2007). xref Reliance on loose monetary policy can be seen as an alternative recapitalization of highly leveraged sectors, including financial institutions, although at a slower pace than through direct equity injections into financial institutions. Our primary data source is Abbas and others (2010) for crisis episodes prior to 2007 and the fall 2011 WEO for crisis episodes since 2007. 2022 Springer Nature Switzerland AG. Figure 5 shows that both expansionary monetary and fiscal policies were more commonly used in advanced economies. However, not all six are resorted to in all crises, but some are used only when there is a crisis. bank restructuring fiscal costs (at least 3% of GDP); extensive liquidity support (at least 5% of deposits and liabilities to non-residents); significant asset purchases (at least 5% of GDP). The database covers the universe of systemic banking crises for the period 1970-2007, with detailed data on crisis containment and resolution policies for 42 crisis episodes, and also includes data on the timing of currency crises and sovereign debt crises. We use this difference as a proxy for the magnitude of discretionary fiscal policies as well as automatic stabilizers. In this case, the bankers may be innocent victims of external circumstances, and it is now that special care is needed to ensure that regulations do not become part of the problem. Beim, David, and Charles Calomiris, 2001, Emerging Financial Markets, Appendix to Chapter 1, (New York: McGraw-Hill/Irwin Publishers). We update the widely used banking crises database by Laeven and Valencia (2008, 2010) with new information on recent and ongoing crises, including updated information on policy responses and outcomes (i.e. Discretionary fiscal policy and automatic stabilizers play a much more important role. However, both types of crises in turn generate larger output losses than currency crises. 219 0 obj <> endobj 214 0 obj <>stream Ashcraft, Adam, 2005, Are Banks Really Special? MarketWatch provides the latest stock market, financial and business news. Table 2 compares our dating with what would result from the simple alternative methodology discussed above based on observed realizations of negative real GDP growth and a slowdown in nominal credit growth. Table A1 presents more detailed information about the policy interventions in these cases. The database extends and builds on the Caprio, Klingebiel, Laeven, and Noguera (2005 . For instance, liquidity provided by the U.S. Federal Reserve to U.S. subsidiaries of Swiss banks would not be measured as liquidity support in Switzerland, but would be included in U.S. liquidity support. Commercial banks The evolution of deposits and other bank liabilities may be affected by similar problems, and additionally may be sticky in the presence of deposit insurance arrangements or credible government guarantees on bank liabilities. The paper also presents Timing of Currency and Sovereign Debt Crises Relative to Banking Crises (In percent of the number of banking crises)Source: Authors calculations. For brevity, we only show the median value for emerging economies. 1 This is the case because it already qualifies as a systemic crisis given that a sufficient number of other policies have been put in place. However, both banking and sovereign debt crises are associated with larger output losses than those in currency crises, and this difference is statistically significant. Since the loss is computed from a statistical calculation of trend output, this trend may not necessarily reflect the efficient level of output. 0000060080 00000 n Table A2 shows the breakdown of fiscal costs for the recent crisis episodes, as well as detailed information on asset guarantees. We propose a new methodology to date banking crisis episodes that is based on a combination of financial distress indicators and policy measures, and that can be consistently applied across countries and over time. This paper presents a new database on the timing of systemic banking crises and policy responses to resolve them. Chapter 473500. Liquidity support is computed as the ratio of central bank claims on deposit money banks (line 12 in IFS) to total deposits and liabilities to nonresidents. Trend real GDP is computed by applying an HP filter (with =100) to the log of real GDP series over [T20, T1] (or shorter if data are not available, though we require at least four precrisis observations). PScript5.dll Version 5.2.2 (2008) by Luc Laeven, Fabian Valencia Add To MetaCart . Drawing on 151 systemic banking crises episodes around the globe during 1970-2017, the database includes information on crisis dates, policy responses to resolve banking crises, and the fiscal and output costs of crises. For instance, in advanced economies with well-functioning interbank markets, financial distress may be readily observed in jumps in the volatility of interbank rates. Reinhart, Carmen, and Kenneth Rogoff, 2009, This Time is Different: Eight Centuries of Financial Folly (Princeton, New Jersey: Princeton University Press). Many Git commands accept both tag and branch names, so creating this branch may cause unexpected behavior.
Silvertowne Silver Bar Serial Number, Nginx Font Awesome Not Working, Corsica Storm Yacht Damage, Realtree Hunting Apparel, Cupe Strike Ontario Education Workers, Indycar Manufacturers 2022, React Fetch Cors Error, Primavera 2023 Lineup Porto,