session13 - Session 13 Banking Crises Session Summary 21st...

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Session 13 Banking Crises
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2 Session Summary 21st Century Crunch crises: old & new timeline indicators Policy Reactions monetary fiscal themes Policy Effectiveness studies lessons outlook
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3 Global Precedents Spain mid-1970s Scandinavia late 1980s/early 1990s Japan 1990s Previous major post-WW2 banking crises US bank panics were frequent problem leading up to WW2
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4 Bank Crises Data Additional sources on banking crises US bank failures http://www.fdic.gov/index.html IMF databank http://www.luclaeven.com/Data.htm Mishkin web appendix http://wps.aw.com/wps/media/objects/7529/7710171/appendixes/ch11apx2.pdf
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5 The Latest Episode Why so special? Size Global synchronisation Market synchronisation Policy reaction
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6 Stressed Out IMF World Economic Outlook, October 2009 Share of Advanced Economies in High Stress (GDP-weighted sum)
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7 Nature of Bank Crises Looking for abrupt and large movements compared with “normal” Not necessarily involving crises in securities and forex markets Significant impairment in banking activities such as funding, loans, etc Key indicators bank share prices credit spreads liquidity pressures yield inversion
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8 Sources of Bank Stress Profitability Balance sheets Asset price pressures Corporate defaults Interest rate mismatch Real sector feedback loops Currency feedback loops
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Over-confidence unusually stable macro activity peace dividends imbalances low real interest rates Innovation Policy tolerance Sleepy regulators 9 A Perfect Storm Asset price bubbles Leverage
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10 US Real Asset Prices Source: BIS Annual report, June 2009 Note that the graph ends in June 2007 just as the sub-prime crisis takes hold and over a year before the collapse of Lehman Brothers 40 50 60 70 80 90 100 110 0 20 40 60 80 100 120 140 70 75 80 85 90 95 00 05 Real equity prices Real house prices (right hand scale)
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11 Crisis Overview Liquidity problems Solvency concerns Panic Stabilisation
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This note was uploaded on 04/03/2012 for the course ECONOMICS V31.9231 taught by Professor Greenleaf during the Spring '10 term at NYU.

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session13 - Session 13 Banking Crises Session Summary 21st...

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