The Fiscal Cost Implications of an Accommodating Approach to Banking Crises
Author(s)
Honohan, Patrick; Klingebiel, Daniela
Abstract
In recent decades, a majority of countries have experienced a systemic banking crisis requiring a major – and expensive – overhaul of their banking system. Budgetary outlays, whether immediate or deferred, have exceeded 50% of Gross Domestic Product (GDP) in some cases. This paper uses cross-country econometric evidence to examine whether the design of crisis containment and resolution policies can systematically influence the overall magnitude of fiscal costs. We find that accommodating policies such as blanket deposit guarantees, open-ended liquidity support, repeated partial recapitalizations, debtor bail-outs and regulatory forbearance all tend to add significantly and sizably to fiscal costs.
