The insolvency of a single bank. – Severe disruption, up to and including complete collapse, of the financial system in a currency area, a financial crisis. Affected by this – as can be empirically proven – are primarily countries with high foreign debt in foreign currency (xeno currency). The default always causes a decline in production, income and prosperity lasting several years; this is associated with tax shortfalls and, as a consequence, higher government debt. Depositors in banks and shareholders also lose their money, at least in part. – As experience has shown, the banking crisis in one country easily spills over to other economies that are linked to the crisis country through close trade exchange. One of the late effects is that creditors demand higher interest rates for a long time when lending to such a country. Between 1994 and 2003, there were thirty such crises internationally, most of them in developing countries and emerging markets. According to calculations by the International Monetary Fund, each of these crises led to a decline in the national product of an average of twenty (!!) percent. – See unwindability, bank-based, bank bashing, bank collapse, carry trades, crash, three-year tender, depositor liability, euro crisis, financial crisis, financial distress, Financial Market Stabilization Act, fear thesis, money market operations, creditor priority, Hypo Real Estate rescue, lending rule, London procedure, memorandum of understanding, Northern Rock debacle, emergency liquidity assistance, quantitative easing, role shuffling, banking, blowback effect, rush to the exit, sovereign debt, denied, sentiment reversal, stop loss rules, subprime crisis, loss of confidence. – Cf. ECB Monthly Bulletin of July 2004, pp. 63 ff. (listing crises in Europe since 1974), ECB Monthly Bulletin of February 2007, pp. 81 ff. (outlining precautionary measures to avert a financial crisis in the EU), ECB Monthly Bulletin of August 2008, pp. 105 et seq. (effects on the monetary policy transmission process; references, overviews), ECB Annual Report 2008, p. 113 et seq. (presentation of measures taken in the course of providing liquidity during the 2008 financial crisis), Financial Stability Report 2011, p. 41 et seq. (foreign assets vis-à-vis selected emerging market economies and the associated risks), Financial Stability Report 2012, pp. 18 et seq. (as a result of the risk association between banks and sovereigns, a banking crisis widens into a sovereign debt crisis), Deutsche Bundesbank Monthly Report of January 2014, pp. 72 et seq. (external debt of peripheral euro area countries worryingly high; overviews), ECB Monthly Report of March 2014, pp. 11 et seq. (impact of the financial crisis on emerging market economies; overviews).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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