Other cases include Japan (8 per cent of GDP), Spain (16 per cent) and the United States saving and loan crisis (3.2 per cent).1 And these are just the fiscal costs. The cost of bank failures is not limited to the cost of rescuing banks or bailing out depositors.
The real economy costs can be greater and longer term, including weakened investor and consumer confidence, higher borrowing costs, potentially protracted credit contractions and, in consequence, lower economic growth. Given this combination of critical importance and potential fragility, no country can afford to view its banking system with indifference. The banking system is something that is central to a nation’s economy.