Macroeconomic Policies for Resolution of Banking Crises

Document Type : Research Papers

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Abstract

Banking crises is a widespread phenomenon in developed and developing countries. In this paper, a specific definition of banking crises is provided and accordingly it is shown how prevalent is systemic banking crises across the world. Then, the paper reviews short run and long run policies for confronting banking crises including Suspension of convertibility, Deposit freeze and/or bank holidays , Regulatory capital forbearance, Government guarantee of depositors, Liquidity support, recapitalization and bank restructuring. Subsequently it describes trade-offs between different approaches and reminds conditions for being effective. It is argued that for the containment of crises and resolution of crises, different sets of policies should be adapted. The role of introducing foreign bank to contain and restructure of banking sector is discussed. Finally it is argued that recently fiscal policy in addition to monetary policy has played an important role in crisis resolution as an effective policy tool. Last section concludes.

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References

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Strategic Studies of public policy
Volume 6, Issue 21
March 2017
Pages 53-69

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