Ever since the financial crisis began in mid-2007, commentators have sought parallels in the hope of finding a template for curing sick banks, especially in the US and UK. The obvious examples are the banking crises in the US in the 1930s, Sweden in the early 1990s and Japan later that decade.
In terms of size and complexity, these crises are probably the most comparable with the one today. There is, however, another example that policymakers should pore over. That is the Chilean banking crisis of the early 1980s, as economists Vitoria Saddi and JF Hornbeck, among others, have recently argued.
Although there are key differences between that crisis and today’s – not least in their origins – there are some valuable lessons that Chile’s recovery plan provides for policymakers.
The Chilean crisis was macroeconomic in origin. In the late 1970s the Andean...
