Buch, Claudia, Tonzer, Lena, Weigert, Benjamin ,(2017), “Assessing the effects of regulatory bank levies”, Vox Eu, 6 March
Banking crises cause large costs to the economy (Reinhart and Rogoff 2011, 2013). Advanced economies are not immune to these costs. Here, the output losses due to financial crises have, on average, been one third of GDP (Laeven and Valencia 2013).1 Across emerging and advanced economies, unemployment increased on average by seven percentage points in the aftermath of financial crises (Reinhart and Rogoff 2009). Compared to a ‘typical’ cyclical downturn, unemployment tends to be higher during downturns following financial crises, and shocks to employment tend to be more persistent (GCEE 2013).
Often, the resilience of the private sector in dealing with the costs of financial crises has been limited. These costs have frequently been shifted to the public sector through bailouts of bank creditors. In the G20 countries, public debt-to-GDP ratios have increased from 64% before the recent crisis to almost 90% in the year 2012,[2] with public support of distressed banks being one key driver behind this increase. In the EU, recapitalisation and asset relief measures used during the period 2008-2013 amounted to 5% of GDP in 2013 (European Commission 2016). One result has been a detrimental feedback loop between banks and sovereigns (Acharya et al. 2015, Farhi and Tirole 2016).
Relevant Posts
- Cesa-Bianchi, Ambrogio, Martin, Fernando Eguren, Thwaites, Gregory, (2017), “Foreign booms, domestic busts: The global dimension of banking crises”, VoxEu, 23 February
- Honohan, Patrick, (2017), “Management and Resolution of Banking Crises: Lessons from Recent European Experience Patrick Honohan”, PIIE, January