Banking crises

A review

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This review surveys the theoretical and empirical literature on the causes and consequences of banking crises, and summarizes the lessons learned from policy interventions to resolve banking crises. Despite their different origins, banking crises display similar patterns. Their causes lie in unsustainable macroeconomic policies, market failures, regulatory distortions, and government interference in the allocation of capital; they are frequently characterized by boom-bust cycles in credit and asset prices; and they are generally resolved through large-scale government intervention. When not handled effectively and swiftly, banking crises tend to impose enormous costs to society by curtailing the flow of credit to the real economy. The article concludes with a review of proposals to enhance financial stability in an increasingly integrated financial system, which include making banking regulation more macroprudential—focusing on the cycle and systemic risk rather than the risk of individual banks—and improving market discipline by limiting explicit and implicit government insurance of bank liabilities.
Original languageEnglish
Pages (from-to)17-40
JournalAnnual Review of Financial Economics
Volume3
Publication statusPublished - 2011

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Banking crisis
Government
Credit
Liability
Government intervention
Market discipline
Policy intervention
Macroeconomic policy
Market failure
Lessons learned
Banking regulation
Financial stability
Asset prices
Financial system
Systemic risk
Integrated
Insurance
Interference
Costs

Cite this

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title = "Banking crises: A review",
abstract = "This review surveys the theoretical and empirical literature on the causes and consequences of banking crises, and summarizes the lessons learned from policy interventions to resolve banking crises. Despite their different origins, banking crises display similar patterns. Their causes lie in unsustainable macroeconomic policies, market failures, regulatory distortions, and government interference in the allocation of capital; they are frequently characterized by boom-bust cycles in credit and asset prices; and they are generally resolved through large-scale government intervention. When not handled effectively and swiftly, banking crises tend to impose enormous costs to society by curtailing the flow of credit to the real economy. The article concludes with a review of proposals to enhance financial stability in an increasingly integrated financial system, which include making banking regulation more macroprudential—focusing on the cycle and systemic risk rather than the risk of individual banks—and improving market discipline by limiting explicit and implicit government insurance of bank liabilities.",
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Banking crises : A review. / Laeven, L.

In: Annual Review of Financial Economics, Vol. 3, 2011, p. 17-40.

Research output: Contribution to journalArticleScientificpeer-review

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