The current financial crisis has triggered sizeable central bank liquidity support of banking systems and, in some cases, official intervention in financial institutions. In managing and resolving banking crises, central banks and finance ministries seek to balance multiple objectives, among them the implications for economic activity and price stability, moral hazard and public expectations. Policymakers must assess the relative effectiveness of their stabilization tools in the short term and over the longer run, and manage potential conflicts. As the details and repercussions of current measures unfold, it is useful to understand the management and resolution of previous crises as a basis for comparison. What lessons can we draw from previous experience?

Advance preparation
The international literature on prior crises and resolutions provides useful insight into how authorities might address systemic banking crises.   Two readings serve as a point of departure for the group discussions.  To prepare for the discussions, participants should read and understand the required readings below.  Additionally, each participant must come prepared to discuss with the group a banking crisis and its resolution in their own country.

Required readings

IMF, 2003, Managing Systemic Banking Crises, Chapters I-VI. 

Glenn Hoggarth and Jack Reidhill, December 2003, “Resolution of Banking Crises: A Review,” Financial Stability Review, Bank of England.

Supplementary readings

Participants may also find it useful to review the interaction between financial crises and aggregate economic activity.  Two accessible treatments are:

The Economics of Money, Banking, and Financial Markets
Frederic S. Mishkin, Seventh Edition, 2004, Addison Wesley, New York, chapter 8, An Economic Analysis of Financial Structure, pp. 169-199.
and
Money, Banking, and Financial Markets
Stephen G. Cecchetti, 2006, McGraw-Hill Irwin, New York, chapter 14, Regulating the Financial System, pp. 349-374.