Banking Crises, Sovereign Default and Macroprudential Policy

Banking crises often happen alongside sovereign debt crises (Reinhart and Rogoff, 2009).
Examples: Russia 1998, Argentina 2001–2002, European debt crisis 2009–2012 (Greece, Italy, Ireland, Portugal, Spain, etc.).
Why?
1 Banks hold government debt.
2 Bank lending affects economic growth and public finances.
3 Government may need to bail out banks.
“Diabolic loop” (Brunnermeier et al., 2016) or “doom loop” (Farhi and Tirole (2017)).
Pronounced negative effect on the real economy.

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