The Workout of Banking Crises: A Macroeconomic Perspective

Hans Gersbach and Jan Wenzelburger ()

CESifo Economic Studies, 2003, vol. 49, issue 2, 233-258

Abstract: This paper provides a macroeconomic perspective for government interventions in banking crisis. Such crisis occur when a large number of banks fail to meet capital requirements or are insolvent. Using a macroeconomic model with financial intermediation, our analyis suggests that strict enforcement of capital-adequate rules suffices in prosperous periods. Capital requirements serve as an indicator for crises interventions in critical states which may require interest rate intervention and restructuring of the banking industry. These policies can be reinforced by random bailouts and temporary financial relief, with a large percentage of the costs being covered by current and future owners of banks. (JEL D41, E4, G2)

Date: 2003
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