Systemic Financial Crises

The article discusses the challenges and complexities of managing systemic financial crises. It highlights the difficulty of achieving a quick, lasting, and low-cost resolution, as seen in recent experiences of many countries. The volume explores various policy options, both microeconomic and macroeconomic, and the trade-offs involved in implementing them. It emphasizes the importance of attention to detail and access to information in successfully managing and resolving a crisis. The book is recommended for anyone involved in such a crisis, and it documents the lessons learned from past experiences. It also acknowledges the difficulty of putting these lessons into practice. Overall, it provides a valuable analysis of containing and resolving systemic financial crises.

Faced with a systemic financial sector crisis, policymakers need to make difficult choices under pressure. Based on the experience of many countries in recent years, few have been able to achieve a speedy, lasting and low-cost resolution. This volume considers the strengths and weaknesses of the various policy options, covering both microeconomic (including recapitalization of banks, bank closures, subsidies for distressed borrowers, capital adequacy rules and corporate governance and bankruptcy law requirements) and macroeconomic (including monetary and fiscal policy) dimensions. The contributors explore the important but little understood trade-offs that are involved, such as between policies which take effect quickly, those which minimize long-term fiscal and economic costs, and those which create favorable incentives for future stability. Successfully implementing crisis management and crisis resolution policy required attention to detail and a good flow of information. Review: After three decades in which domestic financial crises were few and far between, they returned with a vengeance between 1980 and 2000. This book distills the wisdom of officials who have had to cope with such cases and academics who have studied them. Everyone who might become involved in such a crisis, as actor or commentator or victim, should read it, and soon. One of the foremost lessons is that there is a need to take quick, decisive action when a crisis first hits. I recommend especially the contributions on 'Pitfalls in Managing Closures' and the controversial model 'Policies for Banking Closures'. -Charles Goodhart, London School of Economics This is an important book on an important subject. It documents what crisis experience has to teach us and why it is maddeningly difficult to put these lessons into practice. - Edward Kane, Boston College A valuable analysis of what has been learned about containing and resolving systemic financial crises. - Morris Goldstein, Institute for International Economics, Washington, DC