FINANCIAL CRISIS MANAGEMENT Andrew Vorkink Boğaziçi University ECONFIN Seminar Presentation April 22, 2009

2 Crisis Management What can we learn from past crises What role does and can the IMF play

3 Recent failures of selected financial institutions February – United Kingdom, Northern Rock was nationalized £ 88 billion 14 March - United States Bear Stearns absorbed by a commercial bank following a significant Federal Reserve subsidy $ 29 billion 7 September - United States Freddy Mac and Fannie Mae were de facto nationalized $ 200 billion 15 September - United States Lehman Brothers filed for bankruptcy protection 17 September - United States AIG was nationalized $ 87 billion 29 September – Benelux Fortis rescued € 16 billion 29 September – United States Wachovia bought by Citibank $12 billion 29 September – Germany Hypo Real Estate rescued $ 50 billion (raised to 71 on 6 October) 29 September – Iceland Glitnir rescued $ 850 million 29 September – United Kingdom Bradford & Bingley rescued $ 32.5 billion 30 September – Belgium Dexia rescued $ 9.2 billion 30 September – Ireland Irish banks rescued $ 572 billion 7 October – Iceland Lansbanki nationalized 9 October – Iceland Kaupthing nationalized $ 864 million 16 October - Switzerland UBS rescued $ 59.2 billion 19 October – the Netherlands ING € 10 billion 20 October – France French government lent money to 6 large banks € 10.5 billion 27 October – Belgium KBG € 3.5 billion 4 November - Austria Nationalization of Kommunalkredit Constantia Privatbank was nationalized and sold to five Austrian banks for one euro January - Ireland Anglo Irish Bank nationalized 30 March – Spanish bank taken over by government Source: Financial Times, UK Office for National Statistics and OECD.

4 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

Developing Countries Fifteen Major Financial Crises Russia Korea Argentina – Three times! Indonesia Thailand Mexico Turkey Ecuador Jamaica Uruguay

6 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

7 Lessons Learned 1. Speed of response 2. Leadership and coordination 3. Prevention

8 TURKEY How is it doing? A) B)