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The use of blanket guarantees in banking crises

Luc Laeven () and Fabian Valencia ()

Journal of International Money and Finance, 2012, vol. 31, issue 5, 1220-1248

Abstract: Policymakers often use guarantees on bank liabilities to prevent or contain bank runs during systemic banking crises, but their success has been debated. Using a sample of 42 episodes of banking crises, this paper finds that blanket guarantees do help to reduce liquidity pressures on banks, but only partially since they do not stem withdrawals from non-residents. Withdrawals following the announcement of guarantees are much more pronounced for non-resident liabilities than for foreign-currency denominated deposits—which may also be held by residents—suggesting that the results on non-residents are not driven by foreign-currency risk but by concerns about the government’s ability and commitment to honor the guarantee to non-resident liability holders.

Keywords: Banking crisis; Crisis resolution; Blanket guarantee; Moral hazard (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2012
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Working Paper: The Use of Blanket Guarantees in Banking Crises (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:5:p:1220-1248

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