The Workout of Banking Crises: A Macroeconomic Perspective |
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Authors: | Gersbach, Hans Wenzelburger, Jan |
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Affiliation: | * Hans Gersbach, University of Heidelberg Grabengasse 14, 69117 Heidelberg, Germany; Jan Wenzelburger, University of Bielefeld P.O. Box 100 131, 33501 Bielefeld, Germany |
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Abstract: | This paper provides a macroeconomic perspective for governmentinterventions in banking crisis. Such crisis occur when a largenumber of banks fail to meet capital requirements or are insolvent.Using a macroeconomic model with financial intermediation, ouranalyis suggests that strict enforcement of capital-adequaterules suffices in prosperous periods. Capital requirements serveas an indicator for crises interventions in critical stateswhich may require interest rate intervention and restructuringof the banking industry. These policies can be reinforced byrandom bailouts and temporary financial relief, with a largepercentage of the costs being covered by current and futureowners of banks. (JEL D41, E4, G2) |
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Keywords: | Financial intermediation macro-economic risks banking crisis deposit insurance banking regulation |
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