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Lessons Learned: Guillermo Ortiz Martínez, Mercedes Cardona

Journal of Financial Crises

Guillermo Ortiz Martínez served as undersecretary of finance and public credit in Mexico’s federal government from 1988 to 1994. He became secretary in December 1994 in the administration of Ernesto Zedillo and served until December 1997. As undersecretary, he was president of the bank privatization committee and the chief negotiator for Mexico during the North American Free Trade Agreement (NAFTA) negotiations in 1991 to 1993. He was governor of the Bank of Mexico from January 1998 to December 2009 and is currently partner and member of the board of BTG Pactual, a Brazilian investment bank. This Lesson Learned summary is …

Lessons Learned: Daniela Klingebiel, Yasemin Sim Esmen

Journal of Financial Crises

Daniela Klingebiel was principal portfolio manager with the World Bank’s Pension and Endowment Department, Hedge Funds, during the Global Financial Crisis. Throughout her career, she has written many papers on financial crises, comparing various governments’ attempts to manage them and dissecting what has worked and why. This Lessons Learned summary is based on an interview with Klingebiel held on February 4 and March 3, 2021.

Lessons Learned: Paul Boothe, Mary Anne Chute Lynch

Journal of Financial Crises

Paul Boothe served as Canada’s senior associate deputy minister of industry during the Global Financial Crisis (GFC) of 2007–2009. Boothe led the Canadian federal government’s negotiation team during the restructuring talks with Chrysler and General Motors (GM). He also negotiated with the Canadian Auto Workers (CAW), a union that included Tier 1 auto parts suppliers for all the major auto manufacturers worldwide. Canada aligned with the United States government to rescue the auto manufacturers and provided 20% of the funding to rescue the corporations and suppliers. From 2004 to 2005, Boothe served as the associate deputy minister of finance and …

Lessons Learned: Bo Lundgren, Maryann Haggerty

Journal of Financial Crises

Bo Lundgren was Sweden’s cabinet minister for fiscal and financial affairs from 1991 to 1994, making him a key leader in managing the nation’s severe financial crisis during those years. Lundgren had a decades-long political career as a member of the Swedish Parliament from 1975 to 2004, was leader of the Moderate Party (1999–2003), and vice president of the European People’s Party in the European Union. He also served from 2004 to 2013 as director general of the Swedish National Debt Office, the country’s central financial agency. Drawing on his experiences in the Swedish crisis, Lundgren has shared his views …

Lessons For The Discount Window From The March 2023 Bank Failures, Susan Mclaughlin

Journal of Financial Crises

The speed of the bank runs that occurred in the United States in March 2023 took most by surprise. The ensuing policy debate about reform has focused very little on the role of the Federal Reserve’s discount window and how it could be made more fit for purpose in mitigating risks to financial stability emanating from the banking system. Making the discount window a more effective financial stability tool will require actions both to reduce the stigma associated with borrowing and improve the operational agility and readiness of the Fed as lender and banks as borrowers. A number of frictions …

India: Yes Bank Restructuring, 2020, Salil Gupta

Journal of Financial Crises

Yes Bank was suffering from liquidity outflows in the second half of 2019 owing to a combination of deposit withdrawals, invocation of pledged shares, losses from extraordinary credit provisions, and overexposure to stressed sectors like power and infrastructure. In December 2019, Yes Bank reported a Common Equity Tier 1 capital ratio at 0.6%, far below the Reserve Bank of India (RBI) mandated levels, and a quarterly loss of 185 billion Indian rupees (INR; USD 2.5 billion). In early March 2020, the RBI and the Ministry of Finance announced a restructuring plan for India’s fourth-largest private bank, Yes Bank, to prevent …

Fhlb Dividends: Low-Hanging Fruit For Reconfiguring Fhlb Lending, Steven Kelly, Susan Mclaughlin, Andrew Metrick

Journal of Financial Crises

In the United States, the lender-of-last-resort tool is the Federal Reserve’s discount window. Despite countervailing policy efforts, substantial market stigma remains associated with borrowing from the discount window. It is in this context that market participants have come to view the Federal Home Loan Banks (FHLBs) as an alternative to the Fed’s discount window for backstop liquidity needs—despite the FHLBs’ relatively constrained abilities to play this role. Notably, however, the FHLBs don’t just benefit from discount window stigma; the FHLBs reinforce discount window stigma with their subsidized pricing. The FHLBs are government-sponsored enterprises—and as such can fund themselves at government …

Federal Reserve: Conflicts Between Monetary Policy And Bank Regulation In Tackling Inflation, Aaron Klein

Journal of Financial Crises

COVID-19 was a worldwide economic shock, creating a global recession later followed by widespread inflation. The United States’s response to COVID was particularly aggressive across three dimensions: monetary, fiscal, and markets. The US economy generally outperformed other nations similarly impacted by COVID. However, the US experienced substantial instability in its banking sector in the spring of 2023. Multiple banks failed, resulting in the Federal Reserve and other government agencies invoking emergency authority designed to protect financial stability.

This paper argues that the Federal Reserve has unique responsibility for this banking crisis from its multiple roles as (1) conductor of monetary …

Lessons Learned: Andrew Williams, Mercedes Cardona

Journal of Financial Crises

Andrew Williams was deputy assistant secretary for public affairs at the US Department of the Treasury and served as spokesman for Secretary Timothy Geithner in 2009–10. Williams was previously vice president of media relations and public affairs at the Federal Reserve Bank of New York (FRBNY) in 2007–09, when Geithner was its president. During his time at Treasury, Williams was part of several initiatives to improve communications with the public, including the first briefing for economics and financial bloggers in 2009. This Lessons Learned summary is based on an interview with Williams on March 26, 2021.

Lessons Learned: Til Schuermann, Mercedes Cardona

Journal of Financial Crises

Til Schuermann joined the Federal Reserve Bank of New York (FRBNY) in 2001 and held several positions during his tenure, including senior vice president and head of Financial Intermediation in Research and head of Credit Risk in Bank Supervision. In spring 2009, he played a leadership role in the design and execution of the “bank stress test” and the subsequent Comprehensive Capital Analysis and Review (CCAR) programs. After leaving the FRBNY in March 2011, he became a partner at management consulting firm Oliver Wyman, where he has led stress testing for more than 25 banks and financial institutions. He participated …

Lessons Learned: Péter Ákos Bod, Matthew A. Lieber

Journal of Financial Crises

During Hungary’s transition from socialism from 1990 to 1994, Péter Ákos Bod served as minister of industry and trade and then for three years as governor of the National Bank of Hungary (Magyar Nemzeti Bank, or MNB). Following his public sector career in Hungary, Bod served as a director of the European Bank for Reconstruction and Development. Currently, he is a professor at Corvinus University in Budapest in the department of economic policy. This Lesson Learned is based on an interview with Bod on April 26, 2022.

Lessons Learned: Júlia Király, Matthew A. Lieber

Journal of Financial Crises

Júlia Király was deputy governor of the National Bank of Hungary (Magyar Nemzeti Bank, or MNB) from 2007 to 2013. A financial economist serving on MNB’s advisory board in the 1990s, Király helped formulate and adapt Western banking frameworks for Hungary’s economic transition away from socialism. As deputy governor, she oversaw Hungary’s emergency response to the Global Financial Crisis (GFC). A professor of finance at the International Business School Budapest, Király is the author of Hungary and Other Emerging EU Countries in the Financial Storm, published in 2020. This Lessons Learned is based on an interview with Király on June …

Lessons Learned: Ádám Balog, Matthew A. Lieber

Journal of Financial Crises

From 2013 to 2016, Ádám Balog was deputy governor of the National Bank of Hungary (Magyar Nemzeti Bank, or MNB) and a member of the Monetary Council. During the Global Financial Crisis (GFC), Hungary was unable to finance its external debt and negotiated a three-party agreement with the International Monetary Fund (IMF) and the European Union. In this interview, Balog describes the conditions in Hungary before the crisis and the challenges and decisions that he worked on during its aftermath. This Lessons Learned summary is based on an interview with Balog held on February 1, 2022.

Lessons Learned: Ádám Banai, Matthew A. Lieber

Journal of Financial Crises

During the Global Financial Crisis (GFC), Ádám Banai served first as an analyst in the National Bank of Hungary (Magyar Nemzeti Bank, or MNB), where he helped the bank develop and implement a macroprudential framework for financial stability. Since 2020, he has served as MNB’s executive director of monetary policy instruments, financial stability, and foreign reserve management. This Lessons Learned is based on an interview with Banai conducted on April 18, 2023.

United Kingdom: Dunfermline Building Society Restructuring, 2009, Anmol Makhija

Journal of Financial Crises

During the Global Financial Crisis of 2007–2009 (GFC), Dunfermline Building Society—Scotland’s largest building society by assets—faced significant impairments on its commercial mortgages. Rumors about Dunfermline’s financial troubles created a loss of confidence and led to depositor withdrawals. On March 28, 2009, the Financial Services Authority (FSA) determined that Dunfermline was likely to fail to meet its threshold conditions for operating as a deposit taker. This triggered the Special Resolution Regime, which was the new framework for resolving failed financial institutions adopted in the UK in response to the GFC. On March 30, 2009, the Bank of England (BoE) split Dunfermline …

Switzerland: Ubs Restructuring, 2008, Anmol Makhija

Journal of Financial Crises

UBS incurred write-downs totaling USD 50 billion during the Global Financial Crisis, mostly on exposures to securities linked to US subprime mortgages. On October 16, 2008, the Swiss National Bank (SNB) announced that it would set up a special purpose vehicle, StabFund, to purchase up to USD 60 billion of troubled assets from UBS. The Swiss government also subscribed to 6 billion Swiss francs (CHF; USD 5.3 billion) of mandatory convertible notes (MCNs) issued by UBS. Between December 2008 and April 2009, UBS transferred USD 38.7 billion in assets and contingent liabilities to StabFund in three tranches. In August 2009, …

Spain: Banco Popular Restructuring, 2017, Carey K. Mott

Journal of Financial Crises

On Friday, June 2, and Monday, June 5, 2017, Banco Popular Español, S.A., experienced a depositor run. Emergency liquidity assistance from Spain’s central bank proved insufficient to meet the bank’s liquidity needs. On June 6, Popular informed the European Central Bank that it was likely to fail, triggering the European Union’s Single Resolution Mechanism. That evening, the Single Resolution Board (SRB) initiated a sale of Popular’s business to one of Spain’s largest banks, Santander Group S.A., provided that Santander raise or inject enough capital to meet regulatory requirements and provide liquidity to manage further outflows. The sale involved the write-down …

Spain: Bfa-Bankia Group Restructuring, 2012, Lakshimi Swaminathan

Journal of Financial Crises

In 2010 and 2011, seven troubled savings banks (cajas) merged to form Banco Financiero y de Ahorros, S.A. (BFA), which the government capitalized with EUR 4.5 billion (USD 5.9 billion) in convertible securities, and BFA’s commercial banking subsidiary, Bankia (BFA, together with Bankia, was referred to as the BFA-Bankia Group). As a double-dip recession extended BFA-Bankia Group’s expected credit losses in Spain’s real estate market in 2012, third-party stress tests determined that the Group was deeply insolvent. On November 27, 2012, Fondo de Reestructuración Ordenada Bancaria (FROB), Spain’s newly established national resolution authority, and the Bank of Spain (BoS) approved …

Portugal: Banco Espírito Santo Restructuring, 2014, Salil Gupta

Journal of Financial Crises

Banco Espírito Santo (BES) was the second-largest private bank in Portugal in 2014, with assets of EUR 80 billion (USD 81 billion). A capital increase of EUR 1.1 billion to the BES was concluded on market terms in June 2014. In July 2014, BES breached minimum capital requirements and reported a EUR 3.6 billion loss owing to improper loans made to the nonfinancial arm of the Espírito Santo (ES) group. The Bank of Portugal (BOP) adopted a resolution measure for BES on August 3, 2014, to safeguard financial stability by protecting all depositors and ensuring continuation of operating activities of …

Luxembourg: Kaupthing Bank Luxembourg Restructuring, 2008, Ayodeji George

Journal of Financial Crises

The nationalization of Iceland’s Kaupthing Bank hf on October 9, 2008, caused a situation of cross-default and a depositor run at its subsidiary, Kaupthing Bank Luxembourg S.A. (KBL). A cross-default entitles creditors to request immediate execution of their claims. KBL responded on the same day by requesting and receiving a suspension of payments regime (including depositors) from a Luxembourg court, which also appointed administrators. The administrators placed KBL’s operations for sale later that month, receiving a bid from a private fund, Blackfish Capital, which crafted a restructuring plan that creditors approved on June 5, 2009. The restructuring plan, carried out …

Netherlands: Sns Reaal Restructuring, 2013, Ayodeji George

Journal of Financial Crises

In February 2013, the Dutch minister of finance nationalized SNS Reaal, a financial conglomerate that was primarily composed of SNS Bank and Reaal Insurance, after the firm proved unable to remedy a large capital deficit caused by losses in the real estate portfolio of SNS Bank. Alongside the nationalization, the minister of finance announced a EUR 3.7 billion (USD 5 billion) rescue package that included a capital injection and significant restructuring. The goals of the restructuring plan were to isolate the real estate portfolio in a “bad bank” and to sell the insurance subsidiary. The state transferred shareholding responsibilities to …

Latvia: Parex Bank Restructuring, 2008, Bailey Decker

Journal of Financial Crises

Heading into the Global Financial Crisis, JSC Parex banka was Latvia’s second-largest bank in terms of assets, comprising 13.8% of total assets in the Latvian banking sector. In autumn 2008, Parex faced a capital shortfall due to massive credit and market losses in addition to increasing liquidity problems and deposit runs of 240 million Latvian lats (USD 428.6 million). Parex had two senior syndicated loans maturing in February and June 2009, totaling EUR 775 million (USD 992 million), or nearly one-sixth of the bank’s total liabilities. Latvian authorities doubted that Parex would be able to pay back, extend, or replace …

Italy: Restructuring Of Four Banks, 2015, Salil Gupta

Journal of Financial Crises

The Italian government and Bank of Italy (BoI) presented a collective plan to resolve the crisis at four regional banks in Italy in November 2015, to safeguard the local economies in which these small and medium-size banks were located. The four banks had suffered from low or negative equity capital due to losses in loans to small and medium enterprises and retail clients and were placed under special administration between 2013 and 2015, with unsuccessful attempts to raise private capital. Italian regulators split each bank into a bridge or new bank, comprising all the good assets and liabilities of the …

Iceland: Landsbanki Restructuring, 2008, Ayodeji George

Journal of Financial Crises

Iceland’s three largest banks—Landsbanki, Kaupthing, and Glitnir—grew rapidly in the 2000s and failed amid depositor runs when they lost access to foreign funding markets at the onset of the Global Financial Crisis. On October 6, 2008, the Icelandic Parliament passed the Emergency Act, and authorities quickly used their new powers to nationalize the three banks. The Ministry of Finance and Economic Affairs (Ministry of Finance) created new versions of the three banks to hold the old banks’ performing domestic assets and all insured domestic deposits, and the prime minister assured all domestic depositors that they would be protected. Nonperforming domestic …

Hungary: Magyar Külkereskedelmi Bank Restructuring, 2014, Lakshimi Swaminathan

Journal of Financial Crises

In September 2014, the Hungarian state acquired Magyar Külkereskedelmi Bank (MKB), the country’s fifth-largest foreign-owned commercial bank, from Bayerische Landesbank (BayernLB) of Germany, at a depressed price. Before the sale, BayernLB recapitalized MKB by waiving its outstanding claims on the bank. The European Union had required BayernLB to sell MKB by the end of 2016 as a condition for its approval of the official support BayernLB received during the Global Financial Crisis of 2007–09. But the Hungarian central bank, Magyar Nemzeti Bank (MNB), remained concerned about the risk of further losses in MKB’s commercial and residential real estate loan portfolio. …

Greece: Ate Bank Restructuring, 2012, Stella Schaefer-Brown

Journal of Financial Crises

The Agricultural Bank of Greece (ATE Bank) faced serious difficulties throughout 2008, 2009, and 2010. In 2011 and 2012, ATE Bank’s capital situation deteriorated further because of its exposure to the Greek sovereign debt crisis and the 50% haircut of privately held Greek bonds. In March 2012, the Bank of Greece conducted a viability assessment of ATE Bank and submitted a report to the Greek authorities recommending the resolution of ATE Bank through the purchase and assumption of specific assets and liabilities by another bank and the resolution of remaining nonperforming assets and liabilities through a bad bank. This assessment …

Greece: Piraeus Bank Restructuring, 2015, Stella Schaefer-Brown

Journal of Financial Crises

In 2015, Greece began the open-bank recapitalization of Piraeus Bank (the Bank), which continued over an extended period. Concurrently, Greek authorities and Piraeus Bank formulated a restructuring plan. The restructuring and recapitalization of Piraeus Bank used funds that the European Stability Mechanism provided as part of the country’s third economic adjustment program since its sovereign debt crisis began in 2010. In October 2015, a supervisory asset quality review and stress test identified a capital shortfall of EUR 4.66 billion at Piraeus Bank due to Greek sovereign debt and other troubled credit exposures. The following month, the Bank raised EUR 1.94 …

Denmark: Roskilde Bank Restructuring, 2008, Bailey Decker

Journal of Financial Crises

Roskilde Bank A/S was the eighth-largest bank in Denmark at the time of the Global Financial Crisis, with 43 billion Danish kroner (DKK; USD 9.1 billion) in consolidated assets as of March 2008. Roskilde had considerable exposure to real estate and construction markets, prompting ratings downgrades and larger write-downs than expected. On July 10, 2008, Roskilde asked for liquidity assistance from the Danish central bank, Danmarks Nationalbank (DNB). DNB and the banking sector group, Private Contingency Association (PCA), announced emergency liquidity assistance in the form of an unlimited credit facility to Roskilde on July 10, 2008, conditioned on Roskilde’s full …

Denmark: Andelskassen J.A.K. Slagelse Restructuring, 2015, Lakshimi Swaminathan

Journal of Financial Crises

Andelskassen J.A.K. Slagelse was a small Danish cooperative bank with fewer than 4,000 depositors in 2015. Late that year, owing to years of corporate misgovernance and concentrated exposures to large borrowers, Andelskassen found itself on the brink of insolvency. On October 5, 2015, the Danish Financial Supervisory Authority (DFSA) notified the country’s resolution authority, the Financial Stability Company (FSC), that Andelskassen could not meet its solvency requirement and that its resolution was in the public interest. Consequently, the FSC took over the bank, wrote down all relevant capital instruments to zero, imposed losses on uninsured depositors and other creditors, and …

Cyprus: Laiki Bank And Bank Of Cyprus Restructuring, 2013, Stella Schaefer-Brown

Journal of Financial Crises

In 2011, Cyprus’s second-largest bank, Marfin Popular Bank—later renamed Cyprus Popular Bank but commonly known as Laiki Bank—lost billions of euros on Greek government securities when the European Union decided to haircut Greek government bonds. This damaged Laiki Bank’s equity and shut its access to market liquidity. In late 2011, supervisors estimated the bank’s capital shortfall at EUR 3.1 billion. As Laiki Bank faced severe liquidity problems from depositor withdrawals, the Central Bank of Cyprus (CBC) began to extend emergency liquidity assistance (ELA) to the bank in October 2011. In January 2012, the bank submitted a recovery plan to the …