Financial Crises
Back Matter

Back Matter

Author(s):
Stijn Claessens, Ayhan Kose, Luc Laeven, and Fabian Valencia
Published Date:
February 2014
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    Index

    Note: Boxes are denoted by b; figures by f; notes by n; and tables by t.

    A

    Advanced economy

    • business cycles and, 242, 244t

    • financial crises 2007–09 and, 404–405

    • recession duration for, 265

    • recessions and expansions, 242

    Asia

    • cross-border claims on, 184f, 185f

    • funding sources for, 186f

    Asset guarantee, 500, 501–502, 501f

    • government information for, 513

    • optimality of, 512

    • recapitalization for RBS and Lloyds-HBOS and, 517–518

    • systemic banking crisis and, 425t

    Asset management company, 74

    • asset restructuring and, 472

    • for financial crisis 2007–09, 477, 485

    • restructuring and, 478b

    Asset price

    • booms, busts, and bubbles, 6–9, 12, 13f, 14, 30, 211, 251, 330, 331

    • credit busts and, 11, 12, 13

    • creditless recovery and, 320

    Asset restructuring, 469, 470, 472

    Asymmetric information

    • cost of, 512

    • participation issues under, 509

    B

    Balance of payment crisis, 28–29

    Bank

    • good versus bad, 506

    • government ownership of, 78

    • market capitalization of, 415f, 427t

    Bank Advisory Committee (BAC), 601, 603

    Bank asset quality, 513

    • bankruptcy and, 514–515

    • government information for, 513–514

    Bank closure, 83–84

    Bank failure

    • consequence of, 414

    • definition of, 411

    • government assistance for, 411, 412

    • intervention and, 412

    • loss rates on assets of, 414f

    • number and market shares of, 413f

    • reorganization of world financial map due to, 412, 414, 415–416

    Bank holiday, 70

    • crises containment and, 79, 81

    Bank liability guarantee, 409

    Bank manager productivity

    • expertise of, 507

    • moral hazards of, 507

    • toxic asset removal, 506

    Bank restructuring, 83–85

    Bank run

    • banking crises and, 78

    • cause of, 22–23

    • deposit freezes and bank holidays, 79

    • effects of, 433

    • history of, 23–24

    Bank solvency, improvements in, 476

    Banking, currency, default, and inflation crisis (BCDI index), 143f

    Banking credit-to-GDP ratio, 182, 182f

    Banking crisis, 15, 22

    • in 1930s, 196

    • budget composition and, 441t

    • causes of, 24–25

    • coincidence of, 33f

    • cost of, 473f

    • cost of recovery from, 37

    • credit boom and, 333, 443

    • credit growth and, 397

    • creditless recovery and, 314, 320

    • crisis containment policy for, 68–70

    • crisis resolution policy for, 71–75, 80t–81t

    • currency crisis and, 77t

    • dating, 29–30

    • decreasing duration of, 439, 442

    • economic consequences of, 438f

    • economic turndown and, 313

    • effects of, 277, 279–280, 433

    • in emerging and advanced economies, 196f

    • empirical regularities during, 198f

    • endogenous testing between duration and fiscal policy, 450

    • examples of, 278f

    • factors influencing duration of, 439

    • fiscal costs and effects of, 85

    • fiscal expansion and, 439, 443, 447

    • fiscal policy and duration of, 440, 440f

    • fiscal policy and resolution policy, 442t

    • frequency and duration of, 437, 437f, 438

    • frequency of, 32f, 65, 66t

    • government balance and, 441t

    • government debt and, 433

    • history of, 303t

    • initial conditions for, 77, 78–79

    • macroeconomic policy and, 75–76

    • nonbank institutions and, 464

    • nonperforming loans and, 469, 470, 470f

    • output evolution after, 283f, 301f

    • output losses from, 300

    • policy response to, 434–435

    • rebound in the medium term, 301

    • recovery from, 61–62

    • resolution policies and budget composition, 444t

    • sequencing of, 153f

    • start and ending dates for, 406t–407t

    • stock market crash and, 284

    • “too important to fail” attitude, 464

    • types of, 433

    Banking panic, 24–26

    Banking regulation

    • credit booms and, 340

    • operating outside of, 214–215

    Bank-restructuring agency, 74

    • purpose of, 84

    Bankruptcy, 529

    • bank asset quality and, 514–515

    • cost of, 530t

    • fire sales and, 296

    Bear Stearns

    • collapse of, 90

    • credit default swap spreads for, 159, 160f

    Big Five banking crisis, 211

    • household savings rates and, 252

    Bilateral sovereign debt restructuring, 599–600

    Bimodal distribution, 315

    Blanket guarantee, 70

    • bank closures and, 83–84

    • bank-specific announcements for, 82t

    • purpose of, 82

    • time frame for, 81

    Bond exchange, 604

    Bond exchange offer, 605–606

    • terms of, 613

    Bond restructuring, 595–596

    • creditor holdouts to, 610–611

    • legal remedies and clauses, 611–613

    Bonex Plan in Argentina, 81

    The Brady Plan, 603b

    Brazil banking system, 182

    Budget composition

    • banking crises duration and, 440

    • banking crisis duration and, 441t

    • model capturing role of, 443

    • post-growth and, 441t

    • resolution policies and crises duration, 444t

    • resolution policies and long-term growth, 446t

    Business cycle

    • in advanced economies, 242, 244t

    • government consumption elasticity and, 269, 270

    • household savings rates and, 252f

    • monetary/fiscal policy during downturn of, 257–258

    • peaks and troughs of, 243f

    C

    Capital buffer range, 326

    Capital control, 196

    • purpose of, 186

    Capital inflow, 216

    • credit booms and, 336

    • credit funded by, 347

    • post-inflow GDP growth and macroeconomic variables, 216f

    Capital injection program, 425t

    • for financial crisis 2007–09, 468–469

    Capital investment, 254

    Capital mobility, 194

    • since 1870, 195f

    Capped asset guarantee, 501f

    Chile banking system, 181–182

    China

    • borrowing relationship for nonfinancial corporations in, 167f

    • core and noncore liability in, 164, 165

    • Hong Kong claims/liabilities in foreign currency to, 167, 168, 168f

    • household debt restructuring in, 541–542

    • H-P filtered bank liability aggregate for, 165, 166f

    • international capital markets and, 167

    • lending boom in, 169

    • monetary aggregate components for, 169f

    Collateral benefits, financial integration and, 218

    Collective action clause (CAC), 612

    Construction sector, real estate boom-bust and, 372

    Containment, 404

    • of financial crises, 65

    Convertible note, 510, 511, 511f

    Convertible security

    • issuance of, 498, 499f

    • positive medium-term effects of, 507

    Core liability, 163–164

    • in China, 164, 165

    Corporate bankruptcy. See also Bankruptcy

    • cost of, 530t

    Corporate insolvency regime, 485

    Correct Classification Frontier (CCF), 200, 201–202, 201f

    Countrywide Financial, liquidity support for, 89

    Coverage limit, 75

    Coverage ratio, 75

    Credit

    • economic indicators during recession, 266f

    • funding by capital inflow, 347

    Credit boom, 12f, 68, 203f

    • bad versus good, 337–338, 339, 339f

    • banking crises and, 78, 333, 443

    • benefits of, 340

    • and bust, 9–10

    • characteristics of, 328, 329

    • classification of, 30

    • concurrence of, 329f

    • consequences of, 331, 332

    • consumption/investment increase with, 330

    • creditless recovery and, 320

    • as creditless recovery predictor, 335

    • crises and macroeconomic performance, 371t

    • dangers of, 325

    • definition of, 357–358

    • definition of, correlation across, 359t

    • echo of, in recessions, 203f

    • economic turndown and, 314

    • economic/financial policy frameworks and, 336

    • events accompanying, 211–212

    • example of, 328f

    • exchange rates and, 348

    • external imbalances versus, 193–194, 199t

    • financial crises and, 332, 333, 333t, 334, 334f

    • financial deepening and, 332f

    • fiscal policy and, 350–352

    • identification and classification of, 327, 328

    • Latin America and, 182

    • long-term growth and, 332t

    • LTV ratios and, 568

    • macroeconomic factors explaining, 10

    • macroeconomic performance around, 329, 330, 330t

    • macroeconomic policy and, 352

    • macroeconomic variables for, 213f

    • macroprudential policy effect on, 353, 354–356, 357

    • monetary policy effect on, 347, 348t

    • policy options to deal with, 344t–345t

    • policy responses to, 342t–343t

    • preventing from going wrong, 347, 349t

    • risk taking during, 340

    • structural factors explaining, 11

    • triggers for, 336, 337

    Credit bust

    • asset prices and, 11, 12, 13

    • classification of, 30

    Credit contraction, duration of, 224

    Credit crunch, 12, 13f

    • classification of, 30

    • duration of, 224

    • effects of, 14

    • implications of, 35f, 39f

    • leveraging and, 367

    • recessions affecting, 225, 226–227, 226t

    Credit default swap (CDS)

    • credit event and, 595

    Credit default swap (CDS) spread, 158, 159

    • for Bear Stearns and Lehman Brothers, 159, 160f

    Credit growth, 203f, 253f, 254

    • banking crises and, 397

    • crises prediction by, 43

    • dangers of, 202

    • expansions and, 249

    • factors influencing, 251–252

    • financial crises and, 198–199

    • interest rate increases and, 346

    • monetary policy and, 346f

    • recessions and, 234

    Credit rating, debt restructuring and, 615–616, 615f

    Creditless recovery, 39, 40–41, 40f

    • banking crises and, 314

    • credit boom as predictor of, 335

    • definition of, 310

    • frequency of, 312–313, 313f, 314, 320

    • growth with, 310–311

    • normal recovery versus, 311, 315, 315f

    • policy measures for, 320–321

    • recessions and, 313

    • sectoral growth, effect on, 317–318, 319–320, 319t

    Creditor, treatment during crises, 485

    Creditor Committee, 601

    Creditor holdout, 610–611

    Creditor rights, 68

    Credit-to-GDP gap measure, 158, 162, 163

    • for United Kingdom, 162f

    Credit-to-GDP ratio, 331

    • as credit boom, 327, 358

    Crisis. See also Financial crisis

    • cause of, 5

    • definition of, 3

    • multifaceted nature of, 3

    Crisis containment policy, 68–70

    Crisis date, definition of, 67

    Crisis management, containment and resolution, 404

    Crisis resolution policy, 71–75

    Cross-border banking, limiting policy effectiveness, 341

    Cross-border Euro-denominated asset/liability, 164, 165f

    Currency crash

    • cause of, 21

    • sequencing of, 153f

    Currency crisis, 15

    • banking crisis and, 77t

    • coincidence of, 33f

    • creditless recovery and, 314

    • dating, 64

    • definition of, 64

    • frequency of, 32f, 65, 66t

    • growth evolution after, 284f

    • identification and dating of, 27

    • Latin America and, 178

    • models for, 16–18

    • output evolution after, 283f

    Currency mismatching, 183–184

    • as triggering and amplifying factor, 462

    Current account/GDP, 68

    Current asset, U.S. versus global, 219

    D

    Debt buyback, 499, 501f

    Debt contract, restructuring and, 490

    Debt crisis, 15

    • coincidence of, 33f

    • cost of, 37

    • frequency of, 32f

    Debt crisis episode, 597

    Debt exchange, 595

    Debt intolerance, 21, 596

    Debt liquidation, 150

    Debt overhang, 144, 153

    • creditless recovery and, 321

    • inefficiencies and deadweight losses from, 562–563

    • reduction of, 152

    Debt recovery

    • above-market-price asset sale and, 502, 503, 503f

    • Caballero’s scheme and, 502

    • government subsidy and, 495, 496

    • recapitalization and, 497f, 498

    • Sachs’s proposal and, 503–504

    Debt reduction

    • definition of, 594

    • elements of, 147, 147b

    • from financial repression tax, 152

    Debt renegotiation, restructuring without, 494–495, 496, 497, 498, 499–500, 501–502

    Debt rescheduling, 594

    Debt restructuring, 532

    • costs and consequences of, 615

    • credit rating and, 615–616, 615f

    • creditor holdouts to, 610–611

    • domestic versus external, 607, 610

    • financial and macroeconomic indicators in, 614f

    • implications of, 616–617

    • legal remedies and clauses, 611–613

    • macroeconomic implications of, 613, 614–615

    Debt restructuring program, 573t–575t

    Debtor’s Ombudsman, Office of, 576

    Debt-servicing, 527

    Debt-to-GDP ratio, reduction of, 147, 147b

    Debt-to-income ratio, limits on, 385–386, 387–388

    Decomposition. See also Output decomposition

    • Cobb-Douglas production function and, 287

    • demand-side, 289f

    • of medium-term output loss, 285–287

    Default

    • cause of, 20

    • costs and consequences of, 615

    • dating, 29

    • definition of, 149

    • triggers for, 596–597

    Default event, debt restructurings versus, 594

    Deleveraging. See Household deleveraging effects of, 221–222

    • in emerging markets, 144, 145, 145f

    Demand-side decomposition, 289f

    Deposit freeze, 70

    • banking crises and, 79, 81

    Deposit guarantee, banking crises duration and, 439

    Deposit insurance, 75

    Deposit insurance scheme, 85

    Depositor, losses imposed on, 75, 86t

    Difference-in-difference approach, 317

    Direct fiscal cost

    • for banking crises, 473f

    • for financial crisis 2007–09, 472, 482

    • recapitalization and, 428

    • of systemic banking crisis, 416, 417–418, 417f, 417t, 419f

    Direct fiscal outlay, systemic banking crisis and, 425t

    Discretionary fiscal policy, 447, 450

    • robustness estimations for, 453t

    Distressed borrower, asset management and, 477, 478, 479

    Distressed-debt exchange, 594

    Dollar, depreciation of, 88

    Domestic bank, 184

    Domestic debt crisis, 15–16

    • cause of, 21–22

    • identification of, 29

    Domestic debt default

    • for advanced economies, 149, 149t–150t

    • by government, 20–21

    • sequencing of, 153f

    Domestic debt, external debt versus, 146

    Domestic debt restructuring, external debt versus, 607, 610

    Domestic financial reform, output losses and, 299

    Dot-com bubble, 7

    Double-dip recession, 312

    Duration. See also Banking crisis; Financial crisis

    • definition of, 447, 452t

    Dynamic provisioning, 341

    • mechanics and benefits of, 384–385

    Dynamic stochastic general equilibrium (DSGE) model

    • New Keynesian features of, 389

    • performance of policy rules in, 388f

    • use and disadvantages of, 388

    E

    Emerging Europe, funding sources for, 186f

    Employment rate

    • creditless recovery effect on, 317

    • medium-term effect on, 286

    Equity price bust, recessions and, 372

    Euro bank, cross-border assets/liabilities for, 164, 165f

    Eurobond exchange/restructuring, 600

    European Central Bank, 340, 340n

    European Union membership, 568

    Exchange rate

    • during 2008–09 global financial crisis, 178f

    • credit booms and, 348

    • monetary policy and, 346–347

    External debt default, for advanced economies, 149, 149t–150t

    External debt restructuring, domestic debt versus, 607, 610

    External demand shock, recessions and recoveries, 268–269

    External financing, sudden stop models and, 18

    External imbalance

    • credit booms versus, 193–194, 199t

    • financial crises and, 194, 195, 196

    External sovereign debt crisis, 29

    F

    Financial crisis

    • asset price bubbles before, 251

    • asset prices and, 13

    • cause of, 44

    • characteristics of, 398

    • classification of, 4

    • coincidence of, 15f, 33f

    • containment and resolution of, 65

    • cost effects of, 222–223

    • credit booms and, 325, 332, 333, 333t, 334, 334f

    • credit growth and, 198–199

    • creditless recovery from, 39, 40–41, 40f

    • crisis management and, 217

    • definition of, 3–4, 224–225

    • differences to earlier episodes, 217–222

    • early warning indicators of, 157–159, 161–163

    • effects of, 33–34, 36–38, 40–41

    • emerging and developing economies, effect on, 235

    • explanation of, 5–6

    • external imbalances and, 194, 195, 196

    • factors influencing, 248

    • fiscal expansion reducing duration of, 439, 440

    • frequency of, 31–33, 32f, 66t

    • house price-to-rental for recessions associated with, 250f

    • household sector role in, 220

    • housing price evolution during, 7f

    • identification and dating of, 27–31

    • implications of, 35f, 39f, 44

    • indicators for, 463t

    • indicators of, 194

    • Latin America resilience to, 174–175, 176, 177–178, 180

    • lessons learned from, 235

    • leverage and, 367, 369, 370

    • mitigating costs of, 48–50

    • OECD database for comparisons, 224–225

    • policy impact on, 261f

    • policy mix and sequencing for, 480–481

    • predicting, 41–44, 44

    • prevention of, 45–48

    • real estate and capital investment, 254

    • recessions after, 231–232

    • recessions and, 34f, 36, 228, 228t, 229, 230f, 246, 247t, 253f

    • recovery and, 253f, 262t

    • reducing risks of, 481

    • resolution policies and budget composition, 444t

    • sequencing of, 153f

    • similarities to earlier episodes, 211–212, 214–216, 217

    • timing of, 113t–117t

    • tranquil periods versus, 197

    • types of, 15–16

    • weak economic activity and, 335

    Financial crisis of 2007–09

    • advanced economies and, 404–405

    • capital injection program for, 468–469

    • cause of, 26

    • characteristics common to other events, 398

    • characteristics differing from other events, 421

    • containment and resolution policies for, 466f

    • direct fiscal cost for, 472

    • expansionary monetary policy for, 467, 468

    • household indebtedness and, 527

    • initial macroeconomic and financial conditions, 462

    • interventions and liquidity support, 465, 465f

    • liquidity support during, 466–467

    • output loss from, 280, 472, 473

    • overview of, 399–400

    • policy response to, 465, 466, 468f

    • bank recapitalization during, 468–469

    • resolution and experiences for, 484f–485f

    • timeline and policy response for, 483t

    Financial deepening, 336

    • credit booms and, 332f

    Financial distress, costs of, 504–505

    Financial episode-dating rule, 224–225

    Financial institution, assistance with household debt defaults, 564–565

    Financial institution diagnosis, recapitalization and, 474–475

    Financial institution reform, 479–480

    Financial integration, 218–219

    Financial liberalization, 11

    • effects of, 143

    • Latin America and, 182, 183

    • private sector debt and, 146

    Financial openness

    • calculation of, 304

    • output losses and, 296

    Financial reform, 336

    Financial repression, 21, 143, 152

    • private sector debt and, 146

    • as taxation, 144

    Financial risk

    • cause of, 180

    • domestic banks exposed to foreign banks, 184

    • Volcker rule and, 181

    Fire sale

    • bankruptcies leading to, 296

    • effects of, 14

    • negative price effects from, 562

    • triggers for, 9

    Fiscal cost (net), 76

    Fiscal deficit, 435

    • during banking crises, 438

    Fiscal expansion, banking crises duration and, 439, 443, 447

    Fiscal policy

    • during banking crises, 436, 437, 438

    • banking crises duration and, 440, 440f

    • business cycles downturn and, 257–258

    • composition of, 435–436

    • credit booms and, 350–352

    • deficits and public debt linked to, 435

    • economic growth and, 443, 445

    • effectiveness of, 390

    • endogenous testing between duration and, 450

    • for financial crisis 2007–09, 468, 468f

    • recession duration and, 259, 260, 267

    Fiscal stimulus, 435–436

    • postcrisis growth resumption and, 451

    Fiscal tool(s), 376–377

    Fixed exchange rate, 62

    Forbearance, 73

    • purpose of, 83

    Foreclosure

    • during Great Depression, 569f

    • HOLC and prevention of, 572

    • inefficiencies and deadweight losses from, 562–563

    • neighborhood values and, 373, 530

    Foreign bank, 184

    Foreign debt crisis, 15–16

    • government debt-restructuring program for, 537

    • sovereign lending and, 19

    Foreign funding, Korea and, 186

    Foreign-exchange debt, 21

    Formation, 75

    Frictionless framework

    • debt contracts and, 490

    • example of, 492f

    • setup for, 491, 492

    • voluntary debt restructuring and, 493, 494

    Fund manager, rewarding, 7

    G

    GDP growth, 68

    • for United Kingdom, 162, 162f

    Geithner Plan, 518–521

    Global assets, U.S. financial assets versus, 219

    Global financial crisis

    • cause of, 26

    • cost effects of, 222–223

    • credit booms and, 333

    • exchange rates during, 178f

    • impact of, 3

    • OECD database for comparisons, 224–225

    • recessions as synchronized, 266

    • wealth loss because of, 547

    Global liquidity crisis of 2007–8, 86–87

    • containment of, 89–90

    • initial conditions of, 87–88

    • resolution of, 90–92

    Global recession, 234

    Global shock, sudden stops and, 19

    Gold, currency crisis and, 16

    Good/bad bank split, 486

    Government bank-recapitalization program, 532

    Government consumption

    • economic indicators during recession, 266f

    • elasticity with respect to business cycle, 269, 270

    • robustness test using, 271

    Government debt

    • banking crises and, 433, 441t

    • recapitalization and, 473

    • restructuring and, 147

    Government debt default, 20–21, 148f

    Government debt-restructuring program

    • advantages of, 538

    • goals and design of, 534–535

    • implementation of, 535–538

    Government intervention, 529, 530, 532

    • bank restructuring and, 506

    • guidelines for assessing problem for, 530, 531b

    • household debt and, 532–535, 563–566, 583–584

    Government subsidy, debt recovery and, 495, 496

    Great Depression, 143f

    • cost of, 36

    • credit boom and, 333

    • foreclosures and household debt during, 569f

    • United States during, 571–572

    Great Moderation, 243, 244

    Great Recession

    • economic activity during, 560f

    • household balance sheets and, 570–571, 570f

    • household debt and, 551, 552, 552f

    • Hungary during, 578

    • triggers to, 568

    • United States since, 578–581

    Greenspan put, 178

    Gross central government debt, as percentage of GDP, 144, 145f

    Gross recapitalization cost, 74

    H

    Heavily Indebted Poor Countries (HIPC) Initiative, 599

    Herding, 8

    Hidden debt, external debt as form of, 145

    “High-debt” group, 587

    Home Affordable Modification Program (HAMP), 574t, 579–581

    Home Owners’ Loan Corporation (HOLC), 571–572, 573t

    Hong Kong banks, claims/liabilities in foreign currency to China, 167, 168, 168f

    House price run-up, crisis severity and, 368f

    Household balance sheet

    • Great Recession and, 570–571, 570f

    • rebuilding, 265

    Household consumption

    • Great Recession and, 551, 552–554, 552f

    • after housing busts, 587t

    • during housing busts and recessions, 558f

    • housing wealth and, 556f

    • after shocks, 561–562

    Household credit boom, 212

    Household debt

    • consumption loss versus precrisis rise in, 551, 552, 552f

    • economic activity and, 551, 552–554, 557, 558–559, 561–563

    • economic downturn and, 559

    • factors causing buildup of, 567–568

    • government intervention and, 583–584

    • during Great Depression, 569f

    • housing price bust and, 550

    • housing prices, nonperforming loans and, 548f

    • Iceland and, 576

    • macroeconomic policy stimulus and, 563–564

    • Office of Debtor’s Ombudsman, 576

    • policy response to, 571

    Household debt overhang, 527

    • restructuring and, 533

    Household debt restructuring, 529, 530, 532

    • in Argentina, 541

    • benefits of, 584–585

    • facilitation of, 538–539

    • government intervention design in, 532–535

    • government support for, 565–566

    • in Hungary, 544

    • indicators before and after, 544t

    • in Mexico and Uruguay, 540

    • in Republic of Korea, 540–541

    • in Taiwan Province of China, 541–542

    • in United Kingdom, 544–545

    • in United States, 539–540, 542–543

    • United States and, 578–581

    Household deleveraging. See also Leveraging policy response to, 571

    • triggers of, 568, 569, 570–571

    Household indebtedness

    • in 2000 and 2006, 528t

    • financial crisis 2007–09 and, 527

    Household mortgage indebtedness, in 1996 and 2006, 528t

    Household savings rate

    • Big Five banking crisis and, 251–252

    • business cycles and, 252f

    Household sector, role in financial crisis, 220

    Household-debt-to-income ratio, housing price bust and, 553

    Housing boom. See Real estate boom

    Housing bust. See Housing price dust

    Housing Financing Fund, 568

    Housing price bust

    • banking crises and, 89

    • borrower default and, 220

    • duration of, 224

    • economic activity during, 555f

    • factors influencing and effects of, 215–216

    • household consumption during, 558f

    • household consumption following, 587t

    • household debt and, 550, 551, 553–554

    • implications of, 35f, 39f

    • recessions and, 225, 226–227, 226t, 372, 372t

    Hungary

    • during Great Recession, 578

    • household debt restructuring in, 544

    Hybrid security

    • recapitalization with, 498, 499f

    • role of, 510, 511–512

    Hyperinflation

    • debt liquidation and, 150

    • World War I and, 143f

    I

    Iceland

    • Great Recession and household balance sheets, 569, 570–571, 570f

    • household debt relief and, 572, 576–577

    Incentive

    • bank restructuring and, 507

    • bond exchange offers and, 605–606

    Income, to household debt, 547

    Inflation, 67

    • debt default and, 21

    • debt liquidation and, 150

    Interest rate

    • bank solvency and, 476

    • credit boom and, 10

    • credit growth and, 346

    • effect of higher, 341

    • financial crisis and, 42–43

    International capital market, China and Korea relationship with, 167, 167f

    International reserves, 187, 188–189

    International Swaps and Derivatives Association (ISDA), 595

    Intra-European debt, 146

    J

    Japan banking crisis, 30

    K

    Korea

    • foreign funding and, 186

    • household debt restructuring in, 540–541

    • international capital markets and, 167

    L

    Latin America

    • cross-border claims on, 184f, 185f

    • exchange rate depreciation and, 178

    • financial and monetary stimulus in, 176, 177f

    • financial crisis resilience, 174–175, 176, 177–178, 179, 180

    • foreign bank exposure, 184

    • funding sources for, 186f

    • liberalization and, 182, 183

    • monetary policy interest rates in, 177f

    • public debt, 176f

    • terms-of-trade decline in, 180

    Latin America banking system, 182

    • characteristics of, 181

    Lehman Brothers

    • bankruptcy of, 91

    • credit default swap spreads for, 159, 160f

    Lending boom

    • in China, 169

    • subprime mortgages and, 220

    Leverage

    • booms linked to defaults, 334f, 368f

    • financial crises 2007–09 and, 462

    • financial crises and, 367, 369, 370

    • high interest rates and, 341

    • real estate boom-bust cycle and, 373

    • role of, 219

    Liberalization

    • credit booms and, 336

    • limiting policy effectiveness, 341

    • output losses and, 299

    Liberalization. See Financial liberalization

    Liquidity support, 70, 409

    • banking crises and, 89, 405, 465, 465f, 466–467, 486

    • central bank, 408f, 466–467

    Loan origination, credit boom and, 10

    Loan-to-value ratio

    • Housing Financing Fund, 568

    • housing prices and, 387f

    • limits on, 385–386, 387–388

    London Club, 598, 599t

    • bank loan restructuring, 601–602, 603

    Lowering of reserve requirements, 71

    Low-income country debt restructuring, 595

    M

    Macroeconomic policy

    • banking crises and, 75–76

    • credit booms and, 342t, 352

    • economic activity contraction and, 550, 584

    • policy options to deal with, 344t

    • real estate booms and, 373, 374t, 382t

    Macroeconomic policy stimulus, 563–564

    Macroprudential policy

    • credit booms and, 353, 354–356, 357

    • effectiveness of, 390

    • index and components of, 354f

    • preventing bad credit boom, 349t

    • purpose of, 352–353

    • real estate booms and, 379, 380t, 381, 382t

    Making Home Affordable (MHA) initiative, 579–581

    Marginal loan, risks of, 212

    Market discipline, 25

    Market freeze, 9

    Mark-to-market rule, deleveraging and, 221

    Medium-term output, 283

    • after banking and currency crisis, 283f

    Medium-term output loss, 280, 282, 282f

    • computation of, 281

    • factors associated with, 289, 290–291, 294, 295–296

    • factors influencing, 299, 302

    • recovery of, 285–287, 288, 289

    Merrill Lynch, acquisition of, 91

    Mexico, 315

    • collection action clauses and, 612

    • household debt restructuring in, 540

    • Phoenix miracle in, 316f

    Mexico banking system, 182

    Microprudential policy, 46–47

    Monetary aggregate, 163–164

    • components of, for China, 169f

    • credit booms and, 340

    • as financial crisis indicator, 158–159

    Monetary expansion, 409, 410, 410f

    Monetary policy, 177–178, 340

    • business cycles downturn and, 257–258

    • credit booms and, 347, 348t

    • credit growth and, 341, 346f

    • effectiveness of, 350, 389–390

    • for financial crisis 2007–09, 468, 468f

    • fixed exchange rate regimes and, 346–347

    • limiting effectiveness of, 341

    • methodology for identification of, 269, 270, 271

    • preventing bad credit boom, 349t

    • real estate booms and, 375–376

    • recession duration and, 259, 260

    • recovery, effect on, 260, 261, 261f, 262, 262t, 263–265, 263f

    Monetary policy interest rates, in Latin America, 177f

    Monetary policy shock, 247

    • recessions and and recoveries, 269

    Monetary stimulus, in Latin America, 176, 177f

    Moral hazard

    • of bank manager, 507

    • implications of, 486

    • preventing, 479

    Mortgage

    • borrower walking away from, 220

    • distressed borrowers and, 477, 478, 479

    • tighter standards for, 221

    Mortgage indebtedness, in 1996 and 2006, 528t

    Mortgage interest tax deductibility, 378–379

    Mortgage write-down, 574t

    Multilateral Debt Relief Initiative, 599

    Multiple equilibria, currency crisis and, 16

    N

    Nationalization, 74

    • of Fannie Mae and Freddie Mac, 91

    • for financial crisis 2007–09, 486

    Nonperforming loan

    • banking crises and, 77, 469, 470, 470f

    • household debt, housing prices and, 548f

    Northern Rock

    • crisis trigger for, 91

    • liquidity support for, 89

    Norway, 582, 582f

    O

    Oil shock, 143f

    • recessions and recoveries, 268

    Open bank assistance, 486

    Operational restructuring, distressed institutions and, 476–477

    Organization for Economic Cooperation and Development (OECD), 218

    • recessions in, 232f–233f

    • using database for crisis comparison, 223–225

    Output loss, 76

    • accounting for, 279

    • alternative measures to, 305

    • from banking crises, 300, 473f

    • factors influencing, 299

    • for financial crisis 2007–09, 472, 473

    • medium-term, 280

    • postcrisis conditions and policies versus, 297, 298t

    • short-term demand management policy and, 297

    • from systemic banking crisis, 416, 417t, 420, 420f

    • twin crises and, 295–296

    P

    Panic of 1907, 143f

    Panic. See Banking panic

    Paris Club, 595–596, 599t

    • bilateral sovereign debt restructuring, 599–600

    Payment smoothing, 573t

    Peak NPL, 68

    Phoenix miracle, 314

    • deep recessions and, 315

    • in Mexico, 316f

    Postdefault restructuring, 594–595

    Preemptive debt restructuring, 595

    Price-based early warning indicator, 159

    • failure of, 161

    Private consumption, 253f

    • economic indicators during recession, 266f

    • rebuilding household balance sheets and, 265, 266

    Private domestic credit, as percentage of GDP, 146f

    Private investment, 253f, 254

    Private restructuring surplus, 505, 506

    Private sector debt

    • cause of, 146

    • as percentage of GDP, 146f

    Private surplus, 506

    Property tax, 378

    Public debt

    • fiscal policy expansion and, 435

    • in Latin America, 176f

    • from systemic banking crisis, 416, 417t, 418, 419f

    R

    Real estate boom-bust cycle

    • consequences of, 365, 370f

    • construction sector and, 372

    • creditless recovery and, 320

    • dynamic provisioning and, 384–385

    • episodes of, 369f

    • leveraging and, 373

    • macroprudential policy and, 379, 380t, 381

    • monetary policy and, 375–376

    • mortgage interest tax deductibility and, 378–379

    • policy response to, 382t, 391

    • tax treatments and, 377

    • transaction taxes and, 377–378

    Recap cost (gross), 74

    Recap cost (net), 74

    Recapitalization, 74

    • asset guarantee for RBS and Lloyds-HBOS and, 517–518

    • with common equity, 497, 498

    • conditions attached to, 485

    • debt recovery and, 497f

    • direct fiscal cost and, 428

    • for financial crisis 2007–09, 465, 468–469, 486

    • financial institution diagnosis before, 474–475

    • forms of, 84–85

    • government debt and, 473

    • with hybrid securities, 498, 499f

    • issuing preferred stock/convertible debt, 498, 499

    • limits to, 221

    • recovery and, 476

    • systemic banking crisis and, 425t

    • timing for countries with banking crises, 411

    • voluntary participation in, 509–510

    Recession

    • in advanced economies, 242

    • business cycles and, 241

    • categorizing, 246, 268–269, 270t

    • characteristics of, 225–226

    • classification of, 224–225

    • credit and housing market disruptions, 225, 226–227, 226t

    • credit growth and, 234, 335f

    • creditless recovery and, 313, 320

    • crises and, 34f, 36

    • dating and identification of, 312

    • duration of, 34, 243, 256–257

    • economic indicators, 266f

    • equity price bust and, 371

    • evolution by shock, 248f

    • expansions and, 250f

    • factors contributing to, 18

    • after financial crises, 231–232

    • financial crises and, 228, 228t, 229, 230f, 246, 247t

    • household consumption during, 558, 558f

    • housing price bust and, 372, 372t

    • in OECD, 232f–233f

    • OECD database for comparisons, 224–225

    • Phoenix miracles and, 315

    • policy impact on, 260t

    • policy response during, 258, 259, 259f

    • severity and duration of, 434

    • statistics for, 249f

    • unemployment and, 232

    Recovery. See also Debt recovery

    • business cycles and, 245

    • categorizing, 246, 268–269

    • credit-dependent sector performance during, 318

    • creditless recovery versus normal, 311, 315, 315f

    • to date from systemic banking crisis, 425t

    • financial crisis and shocks, 253f

    • of medium-term output loss, 285–287, 288, 289

    • policy impact on, 260, 261, 261f, 262, 262t, 263–265, 263f

    • recapitalization and, 74, 476

    • restructuring and, 495f

    • short-term demand management policy and, 297

    • statistics for, 249f

    • after sudden stop, 314

    Regulatory policy, 325

    • credit booms and, 342t–343t

    • policy options to deal with, 345t

    • real estate booms and, 373, 374t

    Republic of Korea, household debt restructuring in, 540–541

    Reserve accumulation, 188–189

    Reserve requirements, lowering of, 71

    Residential investment, economic indicators during recession, 266f

    Resolution

    • of financial crises, 65

    • financial crises and, 481

    • for financial crisis 2007–09, 486

    • measures taken during, 404

    Resolution policy

    • budget composition and crises duration, 444t

    • budget composition and long-term growth, 446t

    • for financial crisis 2007–09, 466f

    • fiscal policy and crises duration, 442t

    Resolution regime, 485

    Resolution tool(s), 485

    Restructured bank incentive, 507

    Restructuring, 491

    • accommodative policy and, 474

    • for advanced economies, 149t–150t

    • asset management and, 478b

    • as credit event, 595

    • of debt contract, 490

    • debt recovery and, 495f

    • for financial crisis 2007–09, 465, 466

    • goal of, 489

    • of government debt, 147

    • government intervention for, 506

    • of household debt, 529, 530

    • household debt overhang and, 533

    • intervention and, 478–479

    • with no debt renegotiation, 494–495, 496, 497, 498, 499–500, 501–502, 503–504

    • nonperforming loans and, 469, 470, 472

    • participation in, 512

    • social benefits and government participation in, 505–506

    • taxpayer transfer and, 521, 524

    Restructuring plan

    • design of, 504

    • government information for, 513

    • government payment for, 505

    • incentives for, 490

    • long-term impact of, 508

    • positive medium-term effects of, 507

    • private and social surplus from, 504–509

    • taxpayer transfers for, 490

    Reversal, sudden stops and, 38

    Ricardian equivalence, 20

    Ring-fencing, 185

    Risk shifting, 7

    Robustness, 447, 450

    • consumption after housing busts, 587t

    • discretionary expansionary fiscal policy, 453t

    • duration and controlling for fiscal/economic conditions, 448t

    • output losses, alternative measures to, 305

    • post-growth and controlling for fiscal/economic conditions, 449t

    S

    Sachs’s proposal, 503–504

    Scandinavia

    • during 1990s, 581, 582–583

    • government debt in, 582f

    SDIF (Turkish deposit insurance fund), 84–85

    Second-generation crisis model, for currency crisis, 16–17

    Sectoral growth

    • credit recovery effect on, 319t

    • creditless recovery effect on, 317–318, 319–320

    Securitization, 217–218

    Shadow banking system, 464

    Shareholder protection, 74

    Shock

    • credit boom and, 10

    • evolution of recession by, 248f

    • house price-to-rental for recessions associated with, 250f

    • household consumption after, 561–562

    • recessions and recoveries associated with, 253f

    • sudden stops and, 19

    • types of, 245–246

    Short-term debt, 21

    Short-term demand management policy, 297

    Short-term macroeconomic policy, medium-term output losses and, 299

    Significant bank runs, 68

    Social safety net, 564

    Sovereign bond exchange, 604

    Sovereign bondholder

    • communication and negotiation with, 604–605

    • structure of, 604

    Sovereign debt crisis

    • containment and resolution of, 118t–135t

    • creditless recovery and, 314

    • frequency of, 65, 66t

    • identification and dating of, 65

    Sovereign debt restructuring

    • characteristics of, 607, 608t–609t

    • as credit event trigger, 595

    • creditor holdouts to, 610–611

    • definition of, 594

    • domestic versus external, 607, 610

    • financial stability implications of, 616–617

    • frequency of, 595–596

    • process of, 597, 598, 599

    • timeline for, 597f

    • by type of creditor, 599t

    Sovereign default, 148f

    Sovereign lending, 19–20

    Sovereign wealth fund, 92

    Spain, dynamic provisioning, 341

    Spanish bank, arm’s length strategy of, 184

    Special Liquidity Scheme, 90

    State-contingent insurance, 496, 497

    Stick(s), bond exchange offers and, 605–606

    Stock market crash, 284

    Stock market recovery, 452t

    Structural reform, 297, 298t

    • output losses and, 299

    Subprime mortgage, finance company failures and, 220

    Subsidiarization, 185

    Subsidized debt buyback, 499, 501f

    Subsidy looting, 507

    Sudden stop, 15

    • cause and models for, 18–19

    • coincidence of, 33f

    • cumulative output loss from, 38

    • definition of, 28

    • examples of, 28

    • financial crises and, 32f

    • predicting, 42

    • recovery after, 314

    • shocks and, 19

    Sweden, 582, 582f

    Switzerland, USB restructuring, 515–516, 517f

    Synchronized recession, 255f, 256

    • definition of, 254

    • duration and features of, 255

    • global crisis and, 266

    Systemic banking crisis, 15–16

    • conditions of, 400–402

    • cost of, 416, 417t

    • countries affected by, 403t

    • dating, 63–64

    • definition of, 481

    • direct fiscal cost of, 417–418, 417f, 419f

    • examples of, 481, 482, 482t

    • frequency of, 66

    • liquidity support for, 82

    • output loss from, 420, 420f

    • policy response to, 422t–423t

    • preemptive responses in G-20 countries, 424t

    • public debt from, 418

    • recapitalization timing for countries with, 411

    • reducing risks and moral hazard prevention, 479–480

    • restructuring plan for, 83–85

    • starting year for, 402

    • timing of, 94t–112t

    T

    Taiwan Province of China, household debt restructuring in, 541–542

    TARP program, 476

    Taxation

    • financial repression as form of, 144

    • real estate cycles and, 376–377

    Taxpayer transfer

    • minimizing, 496, 496f

    • restructuring and, 495, 521, 524

    • subsidized debt buyback and, 499–500

    Term Securities Lending facility, 90

    Terms-of-trade

    • growth in, 179, 179f

    • Latin America and, 180

    Third-generation crisis model

    • for currency crisis, 17

    • sudden stops and, 18

    “This-time-is-different” syndrome, 45

    Timing of first bank intervention, 70

    Timing of first liquidity assistance, 70

    Toxic asset

    • overall asset quality versus, 513

    • removal of, 506

    Transaction tax, 377–378

    Triple crisis, frequency of, 65, 66t

    Twin crisis, 62

    • definition of, 65

    • frequency of, 66t

    • output losses and, 295–296

    U

    Unemployment, 232

    • economic indicators during recession, 266f

    • household debt and, 564

    • medium-term effect on, 285–286

    United Kingdom

    • banking crisis starting year in, 402

    • credit-to-GDP ratio and GDP growth for, 162, 162f

    • household debt restructuring in, 544–545

    • recapitalization and asset guarantee for RBS and Lloyds-HBOS, 517–518

    United States

    • banking crisis starting year in, 402

    • financial assets, global assets versus, 219

    • foreign claims by nationality of reporting banks, 408f

    • Geithner Plan, 518–521

    • during Great Depression, 571–572

    • household debt restructuring in, 539–540, 542–543

    • since Great Recession, 578–581

    • sovereign debt default by, 152

    • World War I debt default to, 150–151, 151t

    Uruguay, household debt restructuring in, 540

    USB restructuring, 515–516, 517f

    V

    Volcker rule, 181

    Voluntary debt restructuring, 493, 494

    • difficulty of, 494–495

    W

    Wealth

    • household consumption and, 556f

    • loss from global financial crisis, 547

    • in real estate, 370, 371

    Wealth effect, economic activity and, 329

    Wholesale funding, 88

    • noncore funding as, 164

    • reliance on, effects of, 221

    World War I

    • debt default to U.S., 150–151, 151t, 152

    • hyperinflation and, 143f

    World War II, 143f

    • reducing debt from, 147

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