Credit Risk Spreads in Local and Foreign Currencies Dan Galai

ISBN: 9781282843257

Published: September 30th 2004

ebook

20 pages


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Credit Risk Spreads in Local and Foreign Currencies  by  Dan Galai

Credit Risk Spreads in Local and Foreign Currencies by Dan Galai
September 30th 2004 | ebook | PDF, EPUB, FB2, DjVu, talking book, mp3, ZIP | 20 pages | ISBN: 9781282843257 | 10.50 Mb

In episodes of significant banking distress or perceived systemic risk to the financial system, policymakers have often opted for issuing blanket guarantees on bank liabilities to stop or avoid widespread bank runs. In theory, blanket guarantees canMoreIn episodes of significant banking distress or perceived systemic risk to the financial system, policymakers have often opted for issuing blanket guarantees on bank liabilities to stop or avoid widespread bank runs.

In theory, blanket guarantees can prevent bank runs if they are credible. However, guarantee could add substantial fiscal costs to bank restructuring programs and may increase moral hazard going forward. Using a sample of 42 episodes of banking crises, this paper finds that blanket guarantees are successful in reducing liquidity pressures on banks arising from deposit withdrawals.

However, banks foreign liabilities appear virtually irresponsive to blanket guarantees. Furthermore, guarantees tend to be fiscally costly, though this positive association arises in large part because guarantees tend to be employed in conjunction with extensive liquidity support and when crises are severe.



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