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1、11Liquidity, Efficiency, and Bank BailoutsGARY B. GORTON AND LIXIN HUANG*?Intheearly1980s highinterestratescausedmanyU.S. savingsandloaninstitu- tions to become economically distressed. At the height of the crisis, the period 19881992, anaverage ofonebankorS see Bean et al. (1998). On the thrift cri
2、sis generally, see R. Dan Brumbaugh, Jr. (1988), Edward Kane(1989),James Barth (1991),andLawrence White(1991).2. Theterm“zombiethrifts”becamewidelyusedandisnowappliedtosimilarbankingsituations.Inaprivatecommunication, EdKanerecallshavingfirstusedthisterminaspeechtotheAmericanBar Association in 1986.
3、 It first appeared in published work in Kane (1987), a paper that was presentedat theWestern EconomicsAssociationin1986.274BANKING PANICSwas established to liquidate the assets of insolvent thrifts.3The bailout of the thrift industry ultimately cost $180 billion (3.2 percent of GDP); see Gerard Capr
4、ioandDanielaKlingebiel(1996).4Prolongedandexpensive governmentbailouts offinancialintermediariesfol- lowing banking crises have recently proliferated around the world, and it is not only transitional and emerging economies that have had such experiences.5As in the U.S. thrift crisis, the resolution
5、of these crises typically involves the use of public money to subsidize the restructuring or disposal of impaired loans, a “bailout.” In a survey of 120 banks in 24 developed countries in the 1980s and 1990s, Charles A. E. Goodhart (1995) found that two out of three failed banks were bailed out. The
6、se bailouts are expensive. In a sample of 40 such episodes, PatrickHonohanandKlingebiel(2000)foundthat,onaverage,countriesspend 12.8 percent of their GDP cleaning up their banking systems. Stijn Claessens et al. (1999) set the costs at 1550 percent of GNP. To emphasize, even devel- oped economies ot
7、her than the United States have faced large costs of bank bailouts. For example, Spain is estimated to have spent16.8 percentof GNP on bailouts; Sweden, 6.4 percent of GDP; Finland, 8 percent of GDP. See Caprio andKlingebiel(1996). Inbankbailoutsthegovernmentdirectlyaidsbanksbybuyingequity,extend- i
8、ng long-term loan guarantees to the banks, or buying bank loans at favorable prices. Usually, nonperformingloans are purchased by the government at face value (seeDaniel,1997).Sometimesgovernmentbondsareexchanged forbad bankloans.Oftenapubliccentralizedassetmanagementcompanyissetupthatuses governmen
9、t funds to lend to troubled banks againstspecific loan collateral orthatbuystheloansfromthebanks(e.g.,seeJohnHawkinsandPhilipTurner, 1999; David Woo, 2000). For example, in the Asian crisis, government-owned assetmanagement companiesin Indonesia, Malaysia, Korea, and Thailandhad,3. The 1989 Financia
10、l Institutions Recovery, Reform and Enforcement Act (FIRREA) substan- tially changed the regulatory structure of the thrift industry. The Resolution Trust Corporation (RTC) was part of the 1989 law. The RTC was the government vehicle for selling the assets of closedthrifts.4. According to Barth and
11、Bartholomew (1992), as of 1992: “More than 500 institutions were closedatanestimatedpresent-value costinexcessof$50billion.Stillanother500ormoreinstitu- tionswereopenbutinsolventattheendofthedecade. Theseremainingcandidatesforclosurewill cost an estimated $100billion or more . . .” (p. 37). Other es
12、timates are considerably higher. Forexample, the Wall Street Journal, April 6, 1990, cites a Congressional Budget Office and GeneralAccounting Officeprojectionof acostof $300to$350billion.SeeKane and Min-Teh Yu(1996) formarket value estimates.5. Caprio and Klingebiel (1999) count 112 episodes of sys
13、temic banking crises in 93 countries since the late 1970s. Since 1980, at least two-thirds of International Monetary Fund member countries have experienced problems with their banking systems (see James A. Daniel, 1997). Also,seeCarl-Johan Lindgrenet al.(1999).Liquidity,Efficiency,andBankBailouts275
14、by April 1999, taken over bank assets with face values equivalent to 20, 17, 10, and 17.5 percent of the GDP of these respective countries (Lindgren et al., 1999).6An early, and influential, example of such a vehicle was the Recon- struction Finance Corporation (RFC) that President Herbert Hoover in
15、itiated during the onset of the Great Depression in the United States (see James Stu- art Olson, 1977; Joseph Mason, 2001). The RFC is the (implicit or explicit) modelforalargenumberofsuchvehiclesincountriesaroundtheworld,includ- ing the Resolution Trust Corporation, founded to use federal money to
16、buy and then sell assets of insolvent U.S. savings and loans institutions (see Walker Todd, 1992). As we discuss later, government bank restructuring agencies are nowcommonplace.7 Whydogovernmentbailoutsoccur?Whydoesthegovernmentengageinfor- bearance, rather than simply closing insolvent banks and selling their assets to private investors immediately?8Are government bailouts efficient? The basic idea developed in this paper is that it is costly for private agents to be prepared to purcha
