Dealing with bank distress: Insights from a comprehensive database

Konrad Adler and Frédéric Boissay

No 909, BIS Working Papers from Bank for International Settlements

Abstract: We study the effectiveness of policy tools that deal with bank distress (i.e. central bank lending, asset purchases, bank liability guarantees, impaired asset segregation schemes). We present and draw on a novel database that tracks the use of such tools in 29 countries between 1980 and 2016. To keep "all else" equal, we test whether different policies explain differences in how countries fared through bank distress episodes that feature observationally similar initial macro–financial vulnerabilities. We find that, altogether, policy interventions help restore GDP growth and normalize the economy when bank distress follows a period of high cross–border exposures. Central bank lending and asset purchase schemes are especially effective in the first and second years of distress, respectively, and when bank distress follows low asset valuations, high bank leverage and weak bank performance. Overall, our results suggest that swift and broad–ranging policies can mitigate the adverse economic effects of bank distress.

Keywords: bank distress; distress mitigation policy (search for similar items in EconPapers)
JEL-codes: E60 G01 G38 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2020-12
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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