The Bank Credit Analysis Handbook: A Guide for Analysts, Bankers and Investors, 2nd Edition

Chapter 15

The Resolution of Banking Crises

[B]ank restructuring [is a] . . . package of macroeconomic, microeconomic, institutional, and regulatory measures taken in order to correct incentives and to restore problem banking systems to sustainable financial solvency and profitability

—World Bank1

A banking crisis is an event. Bank restructuring is a process.

—Andrew Sheng2

As a banking crisis begins to unfold, there is not necessarily any single occurrence that makes it plain to all that whatever has occurred, or is in progress, is a banking crisis. As the quotation at the top of the page suggests, crises are not self-identifying. Indeed, some time may pass before even the most astute observers recognize that a crisis is underway. Looking back, from a vantage point in the present, there may be any number of vivid events that seem in retrospect to have marked yet one more step into the abyss. Leading into the current crisis that started in 2007, for instance, there were a number of such moments. The murmurs of a subprime crisis in early 2007; the evaporation of interbank liquidity in London in late summer of that year; the bank run at Northern Rock in 2007, the bailout of Bear Stearns in 2008, and the collapse of Lehman Brothers in October of that year, an event that highlighted a month of upheaval in the financial industry. As each juncture was passed, the sense that something extraordinary was occurring increased. By the time the way stations had all been traversed, there was ...