Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1451856024
Category : Business & Economics
Languages : en
Pages : 57
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Book Description
Recapitalizing banks in a systemic crisis is a complex medium-term process that requires significant government intervention and careful management at both the strategic and individual bank levels. This paper highlights the range of operational and strategic issues to be addressed and the institutional arrangements needed to foster an effective banking system restructuring and maximize the returns on government investment. The approaches to recapitalization have varied, with countries choosing different mixes of direct capital injections and asset purchase and rehabilitation. The choice of an appropriate mix is critical, to minimize the expected present value of government outlays net of recoveries.
Author: Mr.Michael Andrews
Publisher: International Monetary Fund
ISBN: 1451973667
Category : Business & Economics
Languages : en
Pages : 31
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Book Description
Bonds issued by the government or government agencies are often used to finance bank restructuring following a systemic crisis. Many conflicting considerations affect the design of the bonds used to pay for public sector investment in bank equity or the purchase of distressed assets from banks. Some bond features can leave restructured banks facing significant risks, laying the foundation for future banking sector problems. Sovereign default makes publicly financed bank restructuring more difficult, but it is still possible to carry out if banks receive sufficient interest income to provide a margin over their cost of funds.
Author: Patrick Honohan
Publisher: World Bank Publications
ISBN:
Category : Bank failures
Languages : en
Pages : 52
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Book Description
After a banking crisis, when authorities have decided to use budgetary funds to help restructure a large failed bank or banking system, apparent conflicts between various goals (involving incentives for the new bank management, for the government's budget, and for monetary stability) can be resolved by suitably designing financial instruments and appropriately allocating responsibility between different arms of government.
Author: Mr.Peter Stella
Publisher: International Monetary Fund
ISBN: 1451850506
Category : Business & Economics
Languages : en
Pages : 40
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Book Description
Central banks may operate perfectly well without capital as conventionally defined. A large negative net worth, however, is likely to compromise central bank independence and interfere with its ability to attain policy objectives. If society values an independent central bank capable of effectively implementing monetary policy, recapitalization may become essential. Proper accounting practice in determining central bank profit or loss and rules governing the transfer of the central bank’s operating result to the treasury are also important. A variety of country-specific central bank practices are reviewed to support the argument.
Author: Patrick Honohan
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
February 2001 After a banking crisis, when authorities have decided to use budgetary funds to help restructure a large failed bank or banking system, apparent conflicts between various goals (involving incentives for the new bank management, for the government's budget, and for monetary stability) can be resolved by suitably designing financial instruments and appropriately allocating responsibility between different arms of government. In the aftermath of a banking crisis, most attention is rightly focused on allocating losses, rebuilding properly managed institutions, and achieving debt recovery. But the authorities' decision to use budgetary funds to help restructure a large failed bank or banking system also has consequences for the incentive structure for the new bank management, for the government's budget, and for monetary stability. These issues tend to be lumped together, but each should be dealt with in a distinctive manner. Honohan points out, among other things, how apparent conflicts between the goals in each of these areas can be resolved by suitably designing financial instruments and appropriately allocating responsibility between different arms of government. First the government must have a coherent medium-term fiscal strategy that determines broadly how the costs of the crisis will be absorbed. Then the failed bank must be securely reestablished with enough capital and franchise value to move forward as a normal bank. This will typically entail new financial instruments involving the government on both the asset and the liability sides of the bank's balance sheet. The bank should not be left with mismatches of maturity, currency, or repricing. Assets that are injected should be bankable and preferably negotiable. The liability structure should give bank insiders the incentive to manage the bank prudently. Financial instruments can be complex and sophisticated but only if the government has the credibility to warrant market confidence that it will deliver on the contracts rather than trying to use its lawmaking powers to renege. Innovative use of segregating sinking funds and "Brady"--Type bonds can help where government credibility is weak. Restructuring the bank will alter the size, maturity, and other characteristics of the government's debt. These characteristics should be optimized separately and with the market as a whole, not just the affected banks. This paper--a product of Finance, Development Research Group--is part of a larger effort in the group to examine the effects of bank regulation. The author may be contacted at
[email protected].
Author: Patrick Honohan
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In the aftermath of a banking crisis, most attention is rightly focused on allocating losses, rebuilding properly managed institutions, and achieving debt recovery. But the authorities' decision to use budgetary funds to help restructure a large failed bank or banking system also has consequences for the incentive structure for the new bank management, for the government's budget, and for monetary stability. These issues tend to be lumped together, but each should be dealt with in a distinctive manner. The author points out, among other things, how apparent conflicts between the goals in each of these areas can be resolved by suitably designing financial instruments and appropriately allocating responsibility between different arms of government. First the government must have a coherent medium-term fiscal strategy that determines broadly how the costs of the crisis will be absorbed. Then the failed bank must be securely reestablished with enough capital and franchise value to move forward as a normal bank. This will typically entail new financial institutions involving the government on both the asset and the liability sides of the bank's balance sheet. The bank should not be left with mismatches of maturity, currency, repricing. Assets that are injected should be bankable and preferably negotiable. The liability structure should give bank insiders the incentive to manage the bank prudently. Financial instruments can be complex and sophisticated but only if the government has the credibility to warrant market confidence that it will deliver on the contracts rather than trying to use its lawmaking powers to renege. Innovative use of segregating sinking funds and "Brady"-type bonds can help where government credibility is weak. Restructuring the bank will alter the size, maturity, and other characteristics of the government's debt. These characteristics should be optimized separately and with the market as a whole, not just the affected banks.
Author: Marinela E. Dado
Publisher: World Bank Publications
ISBN:
Category : Banks and banking
Languages : en
Pages : 60
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Book Description
Countries that have experienced banking crises have adopted one of two distinct approaches toward the resolution of nonperforming assets--a centralized or a decentralized solution. A centralized approach entails setting up a government agency--an asset management company--with the full responsibility for acquiring, restructuring, and selling of the assets. A decentralized approach relies on banks and other creditors to manage and resolve nonperforming assets. Dado and Klingebiel study banking crises where governments adopted a decentralized, creditor-led workout strategy following systemic crises. They use a case study approach and analyze seven banking crises in which governments mainly relied on banks to resolve nonperforming assets. The study suggests that out of the seven cases, only Chile, Norway, and Poland successfully restructured their corporate sectors with companies attaining viable financial structures. The analysis underscores that as in the case of a centralized strategy the prerequisites for a successful decentralized restructuring strategy are manifold. The successful countries significantly improved the banking system's capital position, enabling banks to write down loan losses; banks as well as corporations had adequate incentives to engage in corporate restructuring; and ownership links between banks and corporations were limited or severed during crises. This paper--a product of the Financial Sector Operations and Policy Department--is part of a larger effort in the department to examine the resolution of financial crises.
Author: Mr.Michael Andrews
Publisher: International Monetary Fund
ISBN: 1451843550
Category : Business & Economics
Languages : en
Pages : 26
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Book Description
Closures have been used to resolve problem banks in many countries in a wide range of economic circumstances, yet banking supervisors frequently defer intervention and closure. Avoiding the costs of disruption is the principal argument in favor of extraordinary measures, such as the use of public funds for recapitalization or forbearance, as alternatives to closing insolvent banks. Well-planned and implemented closure options can preserve essential functions performed by failing banks, mitigating disruption. Extraordinary measures to avoid closure should generally be avoided, but may be used in a systemic crisis to preserve some portion of a widely insolvent banking sector.
Author: United States. Congress. House. Committee on Banking, Finance, and Urban Affairs
Publisher:
ISBN:
Category : Deposit insurance
Languages : en
Pages : 152
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Book Description
Author: Mr.Luc Laeven
Publisher: International Monetary Fund
ISBN: 1455218979
Category : Business & Economics
Languages : en
Pages : 37
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Book Description
We collect new data to assess the importance of supply-side credit market frictions by studying the impact of financial sector recapitalization packages on the growth performance of firms in a large cross-section of 50 countries during the recent crisis. We develop an identification strategy that uses the financial crisis as a shock to credit supply and exploits exogenous variation in the degree to which firms depend on external financing for investment needs, and focus on policy interventions aimed at alleviating the bank capital crunch. We find that the growth of firms dependent on external financing is disproportionately positively affected by bank recapitalization policies, and that this effect is quantitatively important and robust to controlling for other financial sector support policies. We also find that fiscal policy disproportionately boosted growth of firms more dependent on external financing. These results provide new evidence of a quantitatively important role of credit market frictions in influencing real economic activity.
