Working Paper: CEPR ID: DP10963
Authors: Timotej Homar; Sweder van Wijnbergen
Abstract: What costs do zombie banks impose on society? We analyze the effects of government and central bank interventions in 68 systemic banking crises since 1980, of which 28 are part of the recent global financial crisis. Our estimation approach controls for the correlation between intervention measures and the time-invariant component of unobservable crisis severity. We find that timely bank recapitalizations substantially reduce the duration of recessions, underscoring the distortions caused by zombie banks and the costs of regulatory forbearance.
Keywords: bank recapitalization; economic recovery; financial crises; intervention; regulatory forbearance; zombie banks
JEL Codes: E44; E58; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank recapitalizations (G28) | duration of recessions (E32) |
| intervention measures (C93) | crisis severity (H12) |
| crisis severity (H12) | duration of recessions (E32) |
| liquidity support (E51) | duration of recessions (E32) |
| guarantees on bank liabilities (G28) | duration of recessions (E32) |