Banking Crises and Bank Resolution: Experiences in Some Transition Economies

Abstract

It has been estimated that in the past 20 years over half the members of the IMF have experienced banking crises.2 Among these, much attention has been paid to the Nordic banking crises of the early 1990s;3 more recently the focus has been on the crises that hit several Asian countries in the late 1990s.4 Between these two well-recorded episodes was a set of major banking crises that critically affected economic developments in a further group of countries: the transition economies. During the 1990s, most of the countries that were undertaking the difficult transition from a centrally planned to a market economy experienced banking crises of varying severity. These crises reflected in part factors specific to countries emerging from state socialism. Banks in transition economies were characterized by linkages to loss-making public and private enterprises, insider lending, absence of sound prudential practices, and legacy problems from the earlier regimes in their countries, all of which characteristics helped undermine the soundness of banking systems in these countries.5 To a surprising extent, however, the experiences of the transition economies reflected factors common to banking crises across all types of economies—transition economies were clearly more vulnerable than others to the emergence of banking problems, but overall the factors contributing to systematic banking sector problems in these countries had a great deal in common with those found elsewhere. Similarly, the lessons that can be learned, in particular on how the authorities handled the crises, may also be of wider applicability.