In a generally healthy and well-regulated banking system, individual banks can and usually should be allowed to fail. Allowing market discipline and supervisory intervention to weed out weak institutions minimizes moral hazard. Where vulnerability is widespread, however, the potential negative externalities associated with widespread bank failures may call for intervention beyond what can be accomplished by the market or standard supervisory instruments.1 Systemic bank restructuring comprises a comprehensive program to rehabilitate a significant part of a banking system so as to provide vital banking services efficiently on a sustainable basis. Such restructuring programs have been undertaken by some 30 Fund member countries over the last fifteen years in a range of economic and political circumstances.
The goal of systemic bank restructuring is to restore or create a sound banking system that can provide efficient banking services to the economy on a sustainable basis. Although this goal is expressed in terms of the system as a whole, its accomplishment requires a wide array of microeconomic, institutional, and regulatory measures, some of which must be geared to the circumstances of individual banks. This Chapter provides a framework for assessing restructuring strategies and instruments by linking these to the framework for sound banking developed in Bank Soundness and Macroeconomic Policy (Lindgren, Garcia, and Saal, 1996). The determinants of a sound banking system developed in that volume are strong internal governance by bank managers and owners, external governance by markets and supervisors, and a generally stable economy. It follows then, that a program to restructure a banking system must resolve problems at the level of the individual banks, the banking system, and the macroeconomy.
Chapter 3 provides background material for Chapters 1 and 2. It analyzes the experiences of selected countries that have undertaken systemic bank restructuring in recent years, with a view to drawing lessons about successful restructuring strategies and best practices. “Best practices” are defined as those that are observed, based on experience over time and across a broad group of countries, to contribute to a successful bank-restructuring outcome. Accordingly, a basic requirement of best practices is that they should be robust to a reasonably wide range of conditions faced by restructuring countries. At the same time, best practices also involve being able to modify elements of the restructuring strategy to conform to the particular circumstances of the problem in each individual country.
This chapter focuses on the tax treatment of loan losses of banks and other regulated credit institutions under the corporate income tax. The issue has been prominent in recent debates on the tax treatment of financial institutions owing mainly to two factors. The first is that during recent episodes of financial distress, loan losses have been perhaps the most significant cause of bank insolvencies and fiscal or quasi-fiscal costs. In this context, ill-designed methods of tax deduction of loan losses can be expected to result in either a substantial decline in tax revenue or an impediment to the resolution of a banking crisis. The second factor is that, until now, international convergence on regulatory matters has achieved the highest degree of success in measuring credit risk and defining minimum capital requirements against the risk of bank failure owing to loan losses. As a result, an opportunity has been created to base the tax treatment of loan losses on a common international conceptual framework.
This paper discusses key findings of the First Review Under the Stand-By Arrangement for Macedonia. Macroeconomic performance of Macedonia remains strong. Through end-December 2005, the authorities met all of the program’s quantitative performance criteria. Growth has remained steady at about 4 percent. Gross reserves have risen above €1 billion, allowing interest rates on National Bank of Macedonia bills to fall since November from 10 percent to 7 percent. To complete the First Review, the authorities have committed to strong policies, including measures to correct for delays in the program’s structural reforms.
This Selected Issues paper evaluates the size of fiscal multipliers in Korea using the IMF’s Global Integrated Monetary and Fiscal model calibrated for Korea. The sensitivity of the results to a number of key factors is explored. Based on this, the impact of the recent fiscal stimulus packages is estimated and the appropriateness of the current mix of measures is assessed. In this context, the paper also draws on international operational experience with fiscal stimulus measures.
Compared with its U.S. and U.K. counterparts, the Labor Tax Credit (LTC) is likely to have more limited effects on incentives for primary-earners to enter the labor force, because of the smaller size of the credit. Any significant increase in the LTC to strengthen its effect on the still large poverty trap in the Netherlands is likely to be extremely expensive. Given the easy availability of part-time employment and the high marginal tax rates, the reduction in hours worked could be substantial in the Netherlands.
The fast economic recovery despite a strong fiscal correction is a result of the government’s determined macroeconomic and structural policies. Executive Directors commend the government for adhering to its ambitious fiscal targets. The careful crafting of legislation to establish a second pillar of the pension system is appropriate. The high confidence in the currency board and the strengthening of the banking system will stabilize the financial system. Nonbanking supervision has to be strengthened further and the draft securities market law should be implemented.
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.