Edited by Thorsten Beck and Ross Levine
Chapter 11: The management and prevention of banking crises: Lessons from recent experience
Over the past half-century, the severity of systemic banking crises has tended to increase, first in developing countries and then in a sudden and remarkable wave of failures in the advanced economies. The Global Financial Crisis, with its protracted sequel in the euro area, was marked by rapid and extensive contagion between banks and between national banking systems, and by the so-called sovereign bank doom loop, where weaknesses in the balance sheets of the banks and the sovereign fed back onto one another. Drawing on the recent experience, this chapter describes lessons learnt about the best policy approaches to management and resolution of such crises, emphasizing issues of bail-in and sovereign vulnerability. It concludes by considering the role of higher equity capital and bailable debt requirements and of other macroprudential policy measures in helping reduce the frequency of systemic banking crises.
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