مدلی از توزیع مشترک بانکداری و بحران مالی

We develop a simple framework for studying the joint distribution of banking and currency crises. We make two points. First, banking and currency crises are related, but they are not the same thing. Viewing crises in isolation or as joint events biases estimates of the likelihood of crises. Second, the proliferation of government promises, such as adding a promise to bail out bank depositors to the promise of fixing the exchange rate, reduces the likelihood of keeping any individual promise when the resources devoted to keeping the promises are fixed.

We develop a simple framework for studying the joint distribution of banking and currency crises. Previous work has examined these crises either in isolation or in perfect correlation. Our motivations for extending this work are both substantive and pedagogical. On the substantive side, we observe that both fixed exchange rates and banks collapsed during the Mexican and Asian financial crises, but in other historical periods fixed exchange rates collapsed without bank collapses or banks failed without a simultaneous collapse of the currency. The crises may be related, but they are not the same thing. We show that studying currency and bank collapses either in isolation or in perfect correlation with each other produces biased estimates of the likelihood of crises. On the pedagogical side, our framework allows us to illustrate the joint distribution of currency and banking crises in a simple picture that is the analog of one presented by Flood and Garber (1984) and used by them to study the distribution of currency crises. Our framework builds on the early balance-of-payments crisis models of Krugman, 1979 and Flood and Garber, 1984 (KFG).1 Those models showed that government commitments to both exchange-rate fixing and to monetizing a primary fiscal deficit inevitably produce a currency crisis. Here we discard the notion that a currency crisis is inevitable. Instead, we add to the government’s fixed exchange-rate promise a second price-fixing promise involving bank deposits and we concentrate on the interaction of those promises. Our intention in this paper is to study the correlation of currency and bank collapses in a linear model that extends Flood and Garber (1984) by adding risk neutral, heavily regulated banks backed by government insurance and bankruptcy laws.2 In our model, banks can accept deposits from domestic and foreign agents and invest those deposits in domestic and foreign assets. Banks may end up with a net asset or net liability position in foreign currency. Returns on domestic assets are uncertain because a shock occurs to domestic fundamentals. Returns on foreign assets—or payments on foreign liabilities—are uncertain because of exchange-rate changes. A shock to domestic fundamentals can trigger a banking collapse if it makes the return on bank investments negative, and the shock can cause a currency collapse if it makes it profitable for speculators to attack the fixed exchange rate. Banking and currency collapses can but need not occur together. Our modeling is shaped by three important features of the Asian crisis. First, commercial banks dominated the financial systems in the Asian crisis countries. In Indonesia, commercial banks accounted for 84 percent of total assets in the financial sector at the end of 1996. In Korea, the figure was 52 percent, in Thailand, 64 percent and in the Philippines, 82 percent (Lindgren et al., 1999). Second, when there were bank failures in the Asian crisis, depositors and creditors of financial institutions were paid off at full book value. Governments introduced blanket guarantees for depositors and creditors of financial institutions shortly after the crisis started.3 They did so in order to stabilize funding for banks and prevent bank runs.4 Third, the estimated fiscal costs of restructuring financial institutions in the Asian countries dwarf the costs usually associated with balance-of-payments crises studied in isolation.5 According to Lindgren et al. (1999), the gross public sector costs associated with financial-sector restructuring will be over 45 percent of GDP in Indonesia, about 25 percent of GDP in Thailand, 15 percent in Korea and about 10 percent in Malaysia.6 Initially, the costs were born mainly by central banks in the form of liquidity support to ailing banks.7 Governments tried to sterilize this liquidity support, and they were largely successful in Korea and Thailand. As the situation stabilized, governments began refinancing the liquidity by issuing domestic government bonds. The full costs to the fiscal authorities will not be know for years, however, and will depend on the amount of additional losses uncovered as well as the proceeds from asset sales and re-privatization. These three facts about the Asian crisis guide our modeling. To the KFG framework, we must add commercial banks whose depositors are well-insured. We also need to pay careful attention to the financing of financial restructuring. In the actual crisis these costs were enormous and will dominate our modeling effort. Our results are appealing and are easily extended. Government guarantees—explicit or implicit—to possibly fragile banks or other firms undermine the fixed exchange rate. All government promises rely in one way or another on the government’s ability and willingness to extract resources from the private sector. Each new resource-extracting promise affects the government’s ability to make good on the old ones. When payouts on government promises are positively correlated, adding an additional promise weakens the government’s ability to fulfill the other ones. Generally, economists have not modeled bank and currency collapses in a single framework.8 Among the few exceptions are Velasco, 1987, Buch and Heinrich, 1999 and Burnside et al., 2000, but their models produce a tight linkage between bank and currency collapses. Velasco studies a banking collapse that leads inevitably to a currency collapse. A government guarantees bank deposits fully and responds to a bank collapse using its international reserves to redeem domestic deposits and assume the interest payments on the banks’ foreign loans. The continued drain on reserves leads predictably to a currency collapse. In Buch and Heinrich, a banking collapse also advances the time of currency collapse. A bad shock to bank asset returns lowers the net worth of banks and increases their cost of foreign borrowing. Since the government is already monetizing a fiscal deficit and losing international reserves, the decline in foreign borrowing speeds up the inevitable collapse of the fixed exchange rate. Burnside et al. let a shift in market expectations trigger a joint collapse of the currency and the banks. They add a banking sector to a model of a self-fulfilling currency crisis along the lines of Obstfeld (1986). In their model, agents believe that if there is a successful attack on the currency, monetary policy will become more expansionary and validate their beliefs about currency depreciation. So speculators attack, and the monetary expansion does follow because the currency collapse increases the domestic-currency value of banks’ foreign liabilities and requires a bank bailout financed partly by money creation. In our work, we model both bank and currency collapses but these collapses need not occur together or sequentially. The range of possible outcomes corresponds more closely to historical experience, where there have been periods characterized only by banking crises, periods with only currency crises, and periods with both occurring together (twin crises). (Bordo and Eichengreen, 1999 and Kaminsky and Reinhart, 1999). Our framework allows us to calculate the probability of each outcome and identify some factors that influence these probabilities. The rest of the paper is organized as follows. Section 2 lays out the model. Section 3 analyzes the probabilities of various types of collapses using a simple graphical apparatus. Section 4 investigates collapse probabilities under an alternative public financing scheme for depositor bailouts. Section 5 draws some conclusions.

We have presented a simple graphical framework that allows us to link multiple policy promises to the underlying fiscal resources that ensure performance on those promises. We considered two well-known promises: (1) to fix the price of the domestic currency in terms of a foreign currency and (2) to fix the price of domestic bank deposits in terms of domestic currency. The examples we studied differed primarily in terms of the fiscal resources available to government. In the first example, the only government revenue source was seigniorage. In the second example, we introduced taxes and interest-paying debt. Our examples were chosen to illustrate two points. First, banking and currency crisis are related, but they are not the same thing. Sometimes they occur together, but not always. Viewing crises in isolation or as joint events biases estimates of the likelihood of crises. Second, the proliferation of government promises reduces the likelihood of keeping any individual promise when the resources devoted to keeping the promises are fixed. The second point is easy to forget. When KFG studied currency crises, their results were based on a fixed commitment to a single promise. Adding a second promise—this time to bail out the banks—will raise the probability of currency crisis, thereby pushing up domestic interest rates as well.