International Banking Crises: A DossierMauro F. GuillnSource: Luc Laeven and Fabian Valencia, “Systemic Banking Crises: A New Database.” IMF WP 08/224.Frequency of Financial CrisesTwin crisis = banking + currency.Triple crisis = banking + currency + sovereign debt.Selected Banking CrisesCountryInitial Year% Nonperforming Loans at PeakGross Fiscal Cost (% GDP)4-Year Output Loss (% GDP) Spain 1977n.a. 5.6 2.2Egypt 1980n.a. 38.1n.a. Chile 198135.642.992.4Senegal 198850.017.032.6USA 1988 4.1 3.7 4.1Sweden 199113.0 3.6 0.0India 199320.0n.a. 3.1Brazil 199416.013.2 0.0Mexico 199418.919.3 4.2Japan 199735.024.017.6Korea 199735.031.250.1China 199820.018.036.8Russia 199840.6 6.0 0.0Turkey 200027.632.0 5.4Argentina 200120.1 9.642.7Source: Luc Laeven and Fabian Valencia, “Systemic Banking Crises: A New Database.” IMF WP 08/224.Source: Carmen M. Reinhardt and Kenneth S. Rogoff, “This Times is Different.” NBER WP 13882 (2008).Sample: N=66.Source: Carmen M. Reinhardt and Kenneth S. Rogoff, “This Times is Different.” NBER WP 13882 (2008).Genesis of a CrisisScant Regulatory OversightOriginate-and- Distribute ModelDeterioration of Underwriting StandardsMortgage SecuritizationMispricing of RiskCredit Default SwapsExcess Global LiquidityCrisisExcessive Financial LeverageLow Interest RatesDrive to Increase Investment ReturnsRising Real Estate Prices Mauro F. Guilln, The Wharton School.Growing Importance of FinanceNote: Financial services and insurance accounted for 7.8% of U.S. GDP in 2006.Housing PricesSubprime DefaultsMortgage Defaults by CountrySource: Analistas Financieros Internacionales, based on OECD data.DebtLeverageRegulatory BalkanizationOffice of Thrift SupervisionFederal Deposit Insurance CorporationIndividual StatesDepartment of LaborOffice of the Comptroller of the CurrencyFederal ReserveNational Credit Union AdministrationSecurities and Exchange CommissionCommodity Futures Trading CommissionCommercial BanksThriftsInsurance CompaniesSecurities and ExchangesFuturesCredit UnionsIndustrial Loan CompaniesBank Holding CompaniesSource: The New York Times, 5 October 2008, Sunday Business Section, p. 9.Artist: Laura Gilbert. http:/www.securitiesdocket.com/2008/10/04/the-zero-dollar-bill/ Possible Actions Guarantees on deposits: most countries. Lowering of reserve requirements. Deposit freeze: e.g. Argentina 01. Bank holiday. Liquidity assistance. Unloading of bad debt. Insurance of bad debt. Bank intervention & restructuring: e.g. Spain 77, Sweden 91, Mexico 94 Japan 97, Korea 97, China 98, Turkey 00. Bank liquidations: e.g. Spain 77, Egypt 80, Chile 81, Senegal 88, USA 88, Sweden 91, Japan 97, Korea 97, Russia 98, Turkey 00.Stumbling AlongActivist FedLiquidity AssistanceSo Far Countrywide BoA. IndyMac Govt. Washington Mutual JPM. Wachovia WF or Citi?. Freddie Mac Govt. Fannie Mae Govt. AIG Govt. Bear Stearns JPM. Merrill Lynch BoA. Lehman Brothers. Goldman Sachs (*). Morgan Stanley (*). GE Capital (?).(*) Turned into bank holding companies.The Investment BanksThe Wall Street TournamentBiggest Write-DownsEuropean Woes Britain: Northern Rock, HBOS, Bradford & Bingley. France: Socit Gnrale. Switzerland: UBS. Germany: IKB Deutsche Industriebank, Hypo Real Estate, the Landesbanks. Benelux: Fortis, Dexia. Italy: UniCredit. Spain: The small savings banks. Ireland: Bank of Ireland, Allied Irish Bank, and four others. Iceland: Glitnir Bank.Resurgent Sun? Sumitomo Mitsui Financial Group invested $1 bn in Barclays. Mizuho invested $1bn in Merrill Lynch. Mitsubishi UFJ is paying: $3.5 bn for 35% of UnionBanCal. $8.4 bn for 20% of Morgan Stanley. Nomura has bought the Asian, European, and Middle Eastern divisions of Lehman.Source: Sovereign Wealth Fund Institute.Sovereign Funds to the RescueBarclays PLC Quatar Investment Authority 7.7 3,483When the end of the world arrives, how will the media report it?USA Today WERE DEAD. National Enquirer O.J. AND NICOLE, TOGETHER AGAIN. Wired THE LAST NEW THING. Rolling Stone THE GRATEFUL DEAD REUNION TOUR. Discover Magazine HOW WILL THE EXTINCTION OF ALL LIFE AS WE KNOW IT AFFECT THE WAY WE VIEW THE COSMOS? Inc. Magazine TEN WAYS YOU CAN PROFIT FROM THE APOCALYPSE. The Wall Street Journal DOW JONES PLUMMETS AS WORLD ENDS. The Economist WORLD EXTINCT, CAPITALISM SURVIVES.