Lessons for rescuing a SIFI: The Banque de France’s 1889 ‘lifeboat’

Pierre-Cyrille Hautcoeur, Angelo Riva, Eugene N. White 02 July 2014

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In the aftermath of the 2008 financial crisis, the Dodd-Frank Act of 2010 set out to limit the authority of the Federal Reserve to rescue insolvent financial institutions. Since 1932, Section 13(3) of the Federal Reserve Act had given the agency the power to lend to “any individual partnership, or corporation” in “unusual and exigent circumstances.” The 2010 Act now compels the Fed to consult with the Secretary of the Treasury before implementing a new lending program.

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Topics:  Economic history Financial markets

Tags:  Central Banks, financial crises, moral hazard, lender of last resort, bailout, bank runs, SIFIs, central banking, Banque de France

Walking back from Cyprus

Mitu Gulati, Lee C. Buchheit 20 March 2013

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On Friday 15 March 2013, European leaders trespassed on consecrated ground. They insisted that Cyprus impose losses – euphemistically dubbed a 'solidarity levy' – on insured depositors with Cypriot banks as a condition to receiving EZ/IMF bailout assistance. Entering Friday’s meeting, the leaders had four options on the table:

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Topics:  Macroeconomic policy

Tags:  bailout, Eurozone crisis, EZ crisis, Cyprus

A no-further-bailouts principle

Tito Boeri 20 July 2012

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Angela Merkel is right. There can’t be solidarity without control. She is also using the right words – “solidarity” and “control”.

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Topics:  EU policies

Tags:  Ireland, bailout, Greece, Eurozone crisis, Portugal

Greece’s 2nd bailout: Debt restructuring with no debt reduction?

Ricardo Cabral 29 July 2011

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The Council of the EU agreed on 21 July 2011 to a second bailout for Greece (Council 2011). This deal is predicated on “private-sector involvement”. The Council seems to have implicitly endorsed a form of private-sector involvement made by a private institution – the Institute of International Finance.

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Topics:  EU policies Europe's nations and regions

Tags:  bailout, Greece, Eurozone crisis

Europe's €200 billion reverse wealth tax explained

Harald Hau 27 July 2011

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When the deal was announced, German Chancellor Merkel highlighted the private-sector involvement. She stressed that this was the result of German intransigence. According to the spin, private creditors have to accept a 21% write-down on their claims. This amounts to a €37 billion private-sector contribution. They also provide €12.8 billion in new loans for debt buyback. This buyback, however, should not count as a private-sector contribution as it amounts to an exchange of one debt for another.

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Topics:  EU policies Europe's nations and regions International finance Poverty and income inequality

Tags:  Ireland, bailout, Greece, Eurozone crisis, Portugal

The Eurozone debt crisis: Facts and myths

Charles Wyplosz 09 February 2010

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Like any crisis, the new one generates myriads of misguided comments and reactions by journalists, financiers and policymakers. Ten myths that are frequently heard clash with ten facts that are frequently overlooked.

Myth 1: Greece is bankrupt. Countries cannot be bankrupt; their governments can only default on their debts. In the absence of internationally recognised resolution mechanisms, government defaults open up a messy situation as governments negotiate with their creditors.

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Topics:  Financial markets International finance

Tags:  eurozone, bailout, Greece, Debt crisis

Will Geithner and Summers Succeed in Raiding the FDIC and Fed?

Jeffrey Sachs 25 March 2009

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Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth -- of perhaps hundreds of billions of dollars -- to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed).

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Topics:  Financial markets

Tags:  bailout, global crisis debate, Geithner plan

Money for nothing?

Johannes Van Biesebroeck 10 February 2009

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On 21 December, 2008, the Canadian and Ontarian governments announced that they would provide the Canadian arms of General Motors and Chrysler with a combined $4 billion in loans. This represents 20% of a similar US aid package announced a day earlier by then-President Bush. As the firms have been flirting with bankruptcy, the “loan” terminology should not be taken too literally, and the widely used “bailout” is clearly the right term. This sudden influx of government support is not nearly as exceptional as often portrayed.

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Topics:  Microeconomic regulation

Tags:  bailout, Car industry, Canada

The cost of resolving financial crises

Luc Laeven 31 October 2008

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The crisis is evolving with breakneck speed. The debate about why it happened and how it will unfold is still very much ongoing, as Felton and Reinhart (2008) show.

While it may be too early to write about the lessons learned, authorities do not have the luxury to wait for these, and have already embarked on large-scale interventions in the financial sector and beyond.

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Topics:  Financial markets

Tags:  subprime crisis, financial crisis, bailout, fiscal cost

An international perspective on the US bailout

Frank Westermann, Romain Rancière, Aaron Tornell 20 October 2008

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As the US economy is hit by the financial crisis and associated bailout costs, it is useful to take an international perspective on current events. In the last three decades, many developing countries have also experienced financial crises and large bailouts. Yet, the growth gains brought by financial liberalisation and deregulation have, in most cases, far more than offset the output and bailout costs of crises. Importantly, financial liberalisation by itself did not generate crises – government meddling and implicit bailout guarantees were often involved.

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Topics:  Financial markets

Tags:  growth, financial crisis, bailout, financial liberalisation

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