Financial Restructuring in Banking and Corporate Sector Crises: What Policies to Pursue?
Stijn Claessens, Daniela Klingebiel, Luc Laeven
NBER Working Paper No. 8386
We review the literature on resolving bank and corporate sector crises to identify government policies that affect the depth of a crisis and the ease and sustainability of recovery, and to analyze their fiscal cost. A consistent framework - including sufficient resources for loss-absorption and private agents facing the right framework of sticks and carrots - is the, although often missing key to successful bank and corporate restructuring. Sustainability of restructuring calls for deeper structural reforms, which often requires dealing with political economy factors up-front. Using data for 687 corporations from eight crisis countries, we find empirically that a package of specific resolution measures can help accelerate the recovery from a crisis. These policies, however, come with significant fiscal costs.