Recapitalizing banks in a systemic crisis is a complex medium-term process that requires significant government intervention and careful management at both the strategic and individual bank levels. This paper highlights the range of operational and strategic issues to be addressed and the...

The scramble to expand deposit guarantees in Europe in response to recent financial turmoil confirms that the on-going integration of European financial markets requires closer coordination of prudential policies and financial safety nets. We study the optimal design of prudential supervision...

Improved liquidity and capital adequacy have increased the Uruguayan banking system’s capacity to withstand shocks. However, macroeconomic and financial risks remain owing to the high level of government debt, guarantees to state banks, high dollarization, and a high share of nonresident...

The ex-post evaluation of Iceland’s Exceptional Access under the 2008 Stand-By Arrangement is presented. In the wake of the global financial crisis in late 2008, Iceland has experienced a deep financial and economic crisis of its own. Domestically, the rapid increase in lending fuelled...

This Financial Sector Stability Assessment on Nigeria discusses the macroeconomic performance and structure of the financial system. Although Nigerian economy experienced both domestic and external shocks in recent years, the economy continued to grow rapidly, achieving more than 7 percent...

The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders’ preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts...

This paper proposes a stylized sequencing of banking supervision and bank restructuring measures designed to complement and expedite the adoption of indirect instruments of monetary policy. Appropriate sequencing reflects both operational considerations and macroeconomic effects of structural...

The condition of banking systems in developing countries strongly influences the design and effectiveness of economic adjustment policies. Bank portfolio weakness can limit the flexibility of interest rate policy, the scope of financial reforms, and the conduct of monetary and fiscal policy....

This paper examines episodes of the banking system distress and crisis in a large sample of countries. The empirical results identify several macroeconomic and financial variables as useful leading indicators. The main macroeconomic indicators were of limited value in predicting the Asian...

Like most transition economies, Bulgaria, Lithuania, and Mongolia suffered severe banking crises, which had to be resolved before growth could resume. The macroeconomic and institutional failings that led to these crises are described, and parallels are drawn with the causes of banking crises in...