A taxonomy of financial crisis resolution mechanisms

cross-country experience

A taxonomy of financial crisis resolution mec ...
Charles W. Calomiris, Charles ...
Locate

My Reading Lists:

Create a new list

Check-In

×Close
Add an optional check-in date. Check-in dates are used to track yearly reading goals.
Today


Buy this book

Last edited by MARC Bot
December 11, 2020 | History

A taxonomy of financial crisis resolution mechanisms

cross-country experience

"The goals of financial restructuring are to reestablish the creditor-debtor relationships on which the economy depends for an efficient allocation of capital, and to accomplish that objective at minimal cost. Costs include direct costs to taxpayers of financial assistance and the indirect costs to the economy that result from misallocations of capital and incentive problems resulting from the restructuring. Calomiris, Klingebiel, and Laeven review cases in which countries used alternative mechanisms to restructure their financial and corporate sectors. Countries typically apply a combination of tools, including decentralized, market-based mechanisms, and government-managed programs. Market-based strategies seek to strengthen the capital base of financial institutions and borrowers to enable them to renegotiate debt and resume new credit supply. Government-led restructuring strategies often include the establishment of an entity to which nonperforming loans are transferred or the government's sale of financial institutions, sometimes to foreign entrants. Market-based mechanisms can, in principle, resolve coordination problems that countries face in the wake of massive debtor and creditor insolvency, with acceptably low direct and indirect costs, particularly when those mechanisms are effective in achieving the desirable objective of selectivity. However, these mechanisms depend for their success on an efficient judicial system, a credible supervisory framework and authority with sufficient enforcement capacity, and a lack of corruption in implementation. Government-managed programs may not seem to depend as much on efficient legal and supervisory institutions for their success, but in fact these approaches, in particular the transfer of assets to government-owned asset management companies, also depend on effective legal, regulatory, and political institutions for their success. Further, a lack of attention to incentive problems when designing specific rules governing financial assistance can aggravate moral hazard problems, unnecessarily raising the costs of resolution. These results suggest that policymakers in emerging market economies with weak institutions should not expect to achieve the same level of success in financial restructuring as other countries, and that they should design resolution mechanisms accordingly. Despite the theoretical attraction of some complex market-based mechanisms, simpler mechanisms that afford quick resolution of outstanding debts that improve financial system competitiveness, and that offer little discretion to governments, are most effective. This paper--a product of the Financial Sector and Operations Policy Department--is part of a larger effort in the department to study the containment and resolution of financial crises"--World Bank web site.

Publish Date
Publisher
World Bank
Language
English

Buy this book

Book Details


Edition Notes

Includes bibliographical references.
Title from PDF file as viewed on 9/8/2004.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.

Published in
[Washington, D.C
Series
Policy research working paper ;, 3379, Policy research working papers (Online) ;, 3379.
Genre
Case studies.

Classifications

Library of Congress
HG3881.5.W57

The Physical Object

Format
Electronic resource

ID Numbers

Open Library
OL3390107M
LCCN
2004617243

Community Reviews (0)

Feedback?
No community reviews have been submitted for this work.

Lists

This work does not appear on any lists.

History

Download catalog record: RDF / JSON
December 11, 2020 Created by MARC Bot import existing book