The Core Characteristics of Financial Crises (original) (raw)
Related papers
Banking and Debt Crises in Europe: The Dangerous Liaisons?
De Economist, 2010
The potential mutation of the Sub-Prime banking crisis into a sovereign debt one in Euro area countries is investigated. After reviewing the criteria used to measure the debt vulnerability, the balance sheet approach (BSA) is presented in order to illustrate the potential connections between these two types of crises. A graphical analysis yields evidence that at the end 2009 the probability of observing a Euro area country defaulting is less likely than six month before. Nevertheless, the serious threats, which concern Greece and Ireland, do not permit us to exclude the occurrence of a contagious, or self-fulfilling, sovereign debt or currency crises in Euro area in the future. JEL-Code: E32, F36.
Erratum to: Banking and Debt Crises in Europe: The Dangerous Liaisons?
De Economist, 2010
The potential mutation of the Sub-Prime banking crisis into a sovereign debt one in Euro area countries is investigated. After reviewing the criteria used to measure the debt vulnerability, the balance sheet approach (BSA) is presented in order to illustrate the potential connections between these two types of crises. A graphical analysis yields evidence that at the end 2009 the probability of observing a Euro area country defaulting is less likely than six month before. Nevertheless, the serious threats, which concern Greece and Ireland, do not permit us to exclude the occurrence of a contagious, or self-fulfilling, sovereign debt or currency crises in Euro area in the future. JEL-Code: E32, F36.
The recent financial crisis : Lessons from Europe
2011
Th e global fi nancial crisis of 2008 was triggered by the subprime loan crisis in the US which resulted in the Lehman Brothers bankruptcy fi ling and bail-out of several major fi nancial institutions. Market integration meant that this crisis quickly spread to the rest of the world. Th e crisis negatively impacted both the fi nancial and real sector of Asian countries. To dampen the eff ect of this imported crisis, authorities in this region reacted swiftly through accommodating monetary policy and signifi cant fi scal spending. Other macro-prudential measures were also adopted. Prior to the crisis, both the fi nancial and real sectors in Asian countries were robust and together with the swift government response, the economy of the Asian countries recovered within four quarters. However, the accommodating policies also resulted in imported infl ation as a result of strong capital infl ow (both FDIs and Hot Money). Several countries experienced extremely strong housing price apprec...
Origins and Resolution of Financial Crises: Lessons from the Current and Northern European Crises *
Asian Economic Papers, 2009
Since July 2007 the world economy has experienced a severe financial crisis originating in the U.S. housing market. The crisis has subsequently spread to the financial sectors in European and Asian economies and led to a severe worldwide recession. The existing literature on financial crises rarely distinguish between factors that create the original strain on the financial sector and factors that explain why these strains lead to systemwide contagion and a possible credit crunch. Most of the literature on financial crises refers to factors that cause an original disruption in the financial system. We argue that a financial crisis with its contagion within the system is caused by failures of legal, regulatory and political institutions.
This paper aims to find out why vast masses of individuals and institutions risk their money in ventures that turn out to be a complete fiasco and to explore how to prevent this from happening again in the future. In the three cases analyzed a common feature was the huge misjudgments by investors of the risks really involved. In at least two of these three cases, this misjudgment was induced by important actors in the financial world. In the case of Argentina, by the IMF backing of the Convertibility program; in the case of subprime mortgages, by the rating agencies’ ratings. In the case of the euro-zone, there was a general assumption that the common currency automatically meant an almost common level of risk. However, as the paper shows, in a monetary union the probability of a government default is higher, not smaller than for an isolated individual country government. The fact that financial institutions have a perverse incentive to take excessive risks is emphasized. Financial activity as a whole is a public good: systemic risks to financial institutions are risks for the economy as a whole. Thus special attention should be placed on those risks capable of damaging the financial system as a whole. The paper is divided into four chapters. The first one is devoted to the 2001 Argentine crisis; the second one, to the 2008 US financial crisis; the third one deals with the European debt crisis; the fourth one concludes.
The Millennium’s First Global Financial Crisis
2014
Financial markets around the world experienced profound losses beginning in 2007 and continuing through early 2009 as a result of the Worldwide credit crisis. The crisis was caused by the collapse of the markets for what were termed Collateralized Debt Obligations (‗CDO‘s‘). These CDO‘s were bonds backed by mortgages on houses in the U.S. but the bonds were bought not only by U.S. banks but also by many municipalities and by European banks. The attractiveness of these bonds was that they paid higher interest rates than U.S. Treasuries or Corporate Bonds. When the CDO markets collapsed- due to massive defaults on the underlying mortgages-the CDO‘s became worthless and the banks holding large numbers of them became insolvent. In order to avoid the collapse of the entire U.S. financial system, the U.S. Government has already given $350 Billion in federal bailout money to over 200 banks and financial institutions and governments similarly rescued many other banks in Europe. World stock ...
WP/18/206 Systemic Banking Crises Revisited
This paper updates the database on systemic banking crises presented in Valencia (2008, 2013). 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. We provide new evidence that crises in high-income countries tend to last longer and be associated with higher output losses, lower fiscal costs, and more extensive use of bank guarantees and expansionary macro policies than crises in low-and middle-income countries. We complement the banking crises dates with sovereign debt and currency crises dates to find that sovereign debt and currency crises tend to coincide or follow banking crises. JEL Classification Numbers: E50; E60; G20.