Research Discussion Papers, Bank of Finland
No 1/1997:
Macroeconomic Aspects of Systemic Bank Restructuring
Peter Nyberg
Abstract: Systemic bank problems arise for a large number of causes
and in spite of both active banking supervision and market discipline. Once
a problem has emerged, swift action is needed to limit further losses,
avoid financial destabilization, and regain efficient markets. The
restructuring exercise is essentially microeconomic in nature, but has
strong links to the development of the whole economy. Particularly
important is to improve risk management in banks and support only viable
banks with fit and proper governance. Government bank support is ultimately
constrained by the need to safeguard government creditworthiness, and bank
creditors may therefore have to carry substantial parts of the loss.
Monetary policy should aim for a low and stable rate of inflation without
sudden changes in interest or exchange rates, but lending of last resort
should remain available at government risk. Bank restructuring is
complicated by the need to simultaneously restructure important bank
customers.
Keywords: banking crisis; bank restructuring; financial stability; government support; macroeconomic policy; (follow links to similar papers)
32 pages, January 20, 1997
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