Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
STYLIZED FACTS FROM RECENT WORLDWIDE EXPERIENCE Patrick Honohan The World Bank Prepared for the Norges Bank Conference “Banking Crisis Resolution – Theory and Policy” Oslo, June 16-17, 2005 Outline • Features of recent crises They’re not all the same; but they’re not all different either • The broad consensus on resolution principles… Speed of action Transparency of cost allocation Restoration of capital/incentives for safe & sound banking …should not conceal some areas of debate Who will provide the capital? How to clean up the assets? Depositor hits? Varied sources of crises • Unstable macro conditions – positive feedback loop – but banking often not causal – unhedged positions a special feature • Unraveling of government impositions – China, Vietnam, Zambia, etc. – Analysis: Macro easy, politics hard • Management failures – “diverted deposits” fraud Four distinctive features of recent resolutions • Skewed distribution of losses – not all banks fail: the fittest survive • State-owned as well as private bank losses – Even in macro-related collapses, • Turkey=50%, Indonesia=46% • Information emerges slowly – One-shot resolution is rare: it’s not over ’til it’s over • Currency depreciation has often been central – Sometimes a trigger, sometimes a resolution tool Post-crisis systemic performance (1) Variety more striking than commonalities • GDP growth tends to be adversely affected – But could be misleading to interpret as causal • Inflation more often slows than accelerates • Nominal interest rates more often fall than increase Regularities for some…but Index of GDP 1997=100 East Asia: GDP Pre- and Post-1997 Crisis 140 130 120 110 100 90 80 70 60 1991 1992 1993 1994 Indonesia 1995 1996 1997 Korea 1998 1999 2000 Malaysia 2001 2002 2003 Thailand From Hanson, 2005 2004 LAC: Some exceptions From Hanson, 2005 LAC: Some exceptions From Hanson, 2005 GDP growth before and since 10 China 8 Vietnam 6 Lithuania Ukraine Cameroon Latvia 4 After Costa Rica Swaziland Malaysia Thailand Bulgaria CAR 2 Yemen Korea Paraguay Argentina Ecuador Jamaica Venezuela Burundi Zimbabwe 0 -2 Congo DR -4 -20 -15 -10 -5 0 Before 5 10 15 Inflation before and after 1.8 1.6 1.4 1.2 After 1.0 0.8 0.6 0.4 Zimbabwe 0.2 Congo DR Russia 0.0 0.0 0.2 0.4 0.6 0.8 Bulgaria 1.0 -0.2 Before 1.2 Brazil 1.4 1.6 1.8 Post-crisis systemic performance (2) • Bank lending does tend to be compressed after crises, even when financial depth increases. • Long-lived macrodoubts, sometimes fuelled by the crisis, can cause dollarization to jump. • Shrinking intermediation spreads have been correlated with falling concentration rates. Bank credit to pvt sector before & after (% GDP) 1.6 1.4 China 1.2 Korea 1.0 After Malaysia Thailand 0.8 0.6 Croatia Vietnam 0.4 Ukraine 0.2 0.0 0.0 Philippines Bulgaria Indonesia Ecuador Mexico Venezuela 0.2 0.4 0.6 Before 0.8 1.0 1.2 1.4 Deposit dollarization before and after 100 Bolivia 90 80 70 Paraguay 60 After Ecuador Bulgaria 50 Zambia 40 Vietnam 30 20 10 0 0 20 40 60 Before 80 100 Spreads (loan-deposit rates) before and after 70 Zimbabwe 60 50 After 40 Paraguay 30 20 Zambia Croatia Jamaica Ecuador Lithuania 10 Argentina 0 0 10 Ukraine Bolivia Bulgaria Latvia 20 30 Before 40 50 Post-containment phase resists econometric assessment of alternatives • Consequences likely to unfold over a decade or more • Different strategies will affect macro stability, investment, power structures as well as future financial stability – Immediate fiscal costs not enough – Wider economic consequences resist summary – Obvious correlations absent • So fall back on broad qualitative experience unavoidable at present Containment phase remains contentious • Differences of opinion center on: – – – – – regulatory forbearance, liquidity support, closure policy, blanket deposit guarantees and allocation of losses to depositors and other claimants. • Accommodation along any of these dimension has been costly (Honohan and Klingebiel, 2003). Post-containment resolution issues: Common ground (1) • Transparent resolution policy; speed of action; deal also with corporate distress. • Merits of an all-private resolution; avoid full socialization of losses – shareholders & subordinated claimholders should pay Post-containment resolution issues: Common ground (2) • Actual practice follows the consensus -- with implementation deficiencies: – Insiders allowed to loot – Unsuitable new shareholders – Too optimistic on asset recoverability (mistaken attempt to protect the budget) Post-containment resolution issues: Points of contention • Capital and ownership • Recapitalization issues (state-owned banks) • AMCs: Not the only solution? • Real value of deposits/exchange rate policy Capital and ownership: options • Relying on existing shareholders – But risk of self-dealing and looting – Leaves State in poor bargaining position – Preserves existing power structures (cf Rajan-Zingales) • Seeking domestic merger partner – 2 weak banks = 1 strong one? • Finding other local owners (where?) • Nationalization (only temporary solution) • Foreign buyers Recapitalization: the logical sequence 1. Inject assets to ensure capitalization and prospective earnings – – should be with tradable/bankable instruments, not vague IOUs consistent with safe-and-sound banking 2. Restructure liability structure to protect taxpayer subject to adequate incentives 3. Rebalance government debt (maturity etc.) 4. Sterilize any undesired monetary side-effects When to recapitalize insolvent Government-owned banks • Recapitalization irrelevant under public ownership… …and could be bad • Fox and chickens • Wait until governance is right • Recapitalization design relevant only in the context of privatization… …or at least financial autonomy of the banks Real value of deposits • Depositor confidence is important, but also need to set system on sustainable path • Impact on financial depth surprisingly low following: Nominal losses for local currency deposits (Argentina), FX deposits (Argentina, Russia); Real losses for local currency from devaluation (Turkey, Indonesia) Monetary depth, selected countries 1990-2004 0.7 0.6 share of GDP 0.5 Argentina 0.4 Indonesia Russia 0.3 Turkey 0.2 0.1 0 1990 1992 1994 1996 1998 2000 2002 2004 Features of the next crisis? • Endogenous dollarization (FX deposits and loan) • Cross-border banking group contagion • Too big for governments?