More importantly, however, foreign banks that funded Asian banks may have assumed an implicit government guarantee of inter-bank counter-parties because a history of supporting troubled institutions may have left that impression. What is the impact of a banking crisis? First, the financial cost of fixing an insolvent banking system is high, and that cost is ultimately borne by the taxpayer.
For example, in Australia’s banking crisis of 1989-1992, the IMF estimates the cost of rescuing state-owned banks to be nearly 2% of GDP. In Mexico, the overall cost of several programs to support the banking system is estimated (in present value) at 6.5% of GDP.