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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