From Systemic Banking Crises to Fiscal Costs: Risk Factors

44 Pages Posted: 31 Aug 2015

See all articles by David Amaglobeli

David Amaglobeli

International Monetary Fund (IMF)

Nicolas End

International Monetary Fund (IMF)

Mariusz Jarmuzek

European Central Bank (ECB); International Monetary Fund (IMF)

Geremia Palomba

International Monetary Fund (IMF); University of Cambridge - Faculty of Economics and Politics

Date Written: July 2015

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: fiscal costs, banking, banking crises, debt, public debt, bank, General,

JEL Classification: E50, E60, G20

Suggested Citation

Amaglobeli, David and End, Nicolas and Jarmuzek, Mariusz and Palomba, Geremia, From Systemic Banking Crises to Fiscal Costs: Risk Factors (July 2015). IMF Working Paper No. 15/166, Available at SSRN: https://ssrn.com/abstract=2653619

David Amaglobeli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nicolas End

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Mariusz Jarmuzek

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Geremia Palomba

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

University of Cambridge - Faculty of Economics and Politics

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

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