The CFA Institute highlighted an interesting
article from the World Bank on Controlling the fiscal costs of banking crises. It summarized the article as follows
World Bank researchers [now current Governor of the Irish Central Bank Patrick Honohan and Daniela Klingebiel] use regression analysis to demonstrate the least and most costly ways to bail out a nation's failing banking systems. Forty countries make up the database.
The conclusion is that unlimited deposit guarantees, open-ended liquidity support, repeated recapitalization, debtor bailouts, and regulatory forebearance all add tremendously to the cost of a bailout.
The paper was written in 2000 and the authors concluded
that the findings in this paper tilt the balance in favor of a strict rather than accommodating approach to crisis resolution.
Exactly what your humble blogger has championed with the blueprint for saving the global financial system.
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