FINANCIAL CRISIS MANAGEMENT

Andrew VorkinkBoğaziçi University

ECONFIN Seminar Presentation

April 22, 2009

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Crisis Management

What can we learn from past crises

What role does and can the IMF play

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Recent failures of selected financial institutions

20087 February – United Kingdom, Northern Rock was nationalized £ 88 billion14 March - United States Bear Stearns absorbed by a commercial bank

following a significant Federal Reserve subsidy $ 29 billion7 September - United States Freddy Mac and Fannie Mae were de facto nationalized $ 200 billion15 September - United States Lehman Brothers filed for bankruptcy protection 17 September - United States AIG was nationalized $ 87 billion29 September – Benelux Fortis rescued €16 billion29 September – United States Wachovia bought by Citibank $12 billion29 September – Germany Hypo Real Estate rescued $ 50 billion (raised to 71 on 6 October)29 September – Iceland Glitnir rescued $ 850 million29 September – United Kingdom Bradford & Bingley rescued $ 32.5 billion30 September – Belgium Dexia rescued $ 9.2 billion30 September – Ireland Irish banks rescued $ 572 billion7 October – Iceland Lansbanki nationalized9 October – Iceland Kaupthing nationalized $ 864 million16 October - Switzerland UBS rescued $ 59.2 billion19 October – the Netherlands ING € 10 billion20 October – France French government lent money to 6 large banks € 10.5 billion27 October – Belgium KBG € 3.5 billion4 November - Austria Nationalization of Kommunalkredit Constantia Privatbank was nationalized

and sold to five Austrian banks for one euro2009

15 January - Ireland Anglo Irish Bank nationalized30 March – Spanish bank taken over by government

Source: Financial Times, UK Office for National Statistics and OECD.

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Losses to Financial Systems

OECD estimates (February 2009) $450 billion losses in the sub-prime market IMF estimates (April 2009) losses from the global financial crisis will total $4.1 trillion through 2010 for US, Europe and Japan$550 billion write-downs remain for US$750 billion remain for European banks

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1995-2005Developing Countries

Fifteen Major Financial CrisesRussiaKoreaArgentina – Three times!IndonesiaThailandMexicoTurkeyEcuadorJamaicaUruguay

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Seven Phases of Financial Crises

1. Vulnerabilities

2. Triggers

3. Response

4. IFI Support

5. Financial System Support

6. Structural Reforms

7. Crisis Prevention Plan

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Lessons Learned

1. Speed of response

2. Leadership and coordination

3. Prevention

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TURKEY - 2009

How is it doing?

A) B)