From Systemic Banking Crises to Fiscal Costs: Risk Factors

David Amaglobeli, Nicolas End, Mariusz Jarmuzek and Geremia Palomba

No 2015/166, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; fiscal cost; banking crisis; cost; direct cost; financial crisis; fiscal costs; contingent liabilities; resolution cost; banking sector characteristic; cost recovery; standard deviation; Banking crises; Commercial banks; Systemic crises; Global (search for similar items in EconPapers)
Pages: 43
Date: 2015-07-20
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Citations: View citations in EconPapers (15)

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