Origins of banking crises in Latin America: a critical view

The objective of this paper is to bridge an important gap between academic literature and the lessons of recent financial crises in Latin America. Although standard economic theory holds that banking crises are a singular phenomenon that should be treated in a uniform fashion, the banking crises of Mexico, Argentina, and Uruguay, and the responses of local authorities, convincingly demonstrate that there are in fact two distinct types of banking crisis that require equally distinct resolution measures. Taking into account these historical episodes, this paper presents a conceptual framework that both accommodates the possibility of two types of banking crisis and offers the analytical framework necessary to examine benefits and disadvantages of different resolution strategies when applied to distinct types of crisis.