A taxonomy of financial crisis
            resolution mechanisms : cross-country experience
The goals of financial restructuring are
            to re-establish the creditor-debtor relationships upon which
            the economy depends for an efficient allocation of capital,
            and to accomplish that objective at minimal cost.  Costs
            include direct costs to taxpayers of financial assistance
            and the indirect costs to the economy that result from
            misallocations of capital and incentive problems resulting
            from the restructuring.  The authors review cases in which
            countries employed alternative mechanisms to restructure
            their financial and corporate sectors.  Countries typically
            apply a combination of tools, including decentralized,
            market-based mechanisms and government-managed programs.
            Market-based strategies seek to strengthen the capital base
            of financial institutions and/or borrowers to enable them to
            renegotiate debt and resume new credit supply.
            Government-led restructuring strategies often include the
            establishment of an entity to which non-performing loans are
            transferred or the government's sale of financial
            institutions, sometimes to foreign entrants.  Market-based
            mechanisms can, in principle, resolve coordination problems
            countries face in the wake of massive debtor and creditor
            insolvency, with acceptably low direct and indirect costs,
            particularly when those mechanisms are effective in
            achieving the desirable objective of selectivity.  However,
            these mechanisms depend for their success on an efficient
            judicial system, a credible supervisory framework and
            authority with sufficient enforcement capacity, and a lack
            of corruption in implementation.  Government-managed
            programs may not seem to depend as much on efficient legal
            and supervisory institutions for their success, but in fact
            these approaches, in particular the transfer of assets to
            government-owned asset management companies, also depend on
            effective legal, regulatory, and political institutions for
            their success.  Further, a lack of attention to incentive
            problems when designing specific rules governing financial
            assistance can aggravate moral hazard problems,
            unnecessarily raising the costs of resolution.  These
            results suggest that policymakers in emerging market
            economies with weak institutions should not expect to
            achieve the same level of success in financial restructuring
            as other countries, and that they should design resolution
            mechanisms accordingly.  Despite the theoretical attraction
            of some complex market-based mechanisms, simpler resolution
            mechanisms that afford quick resolution of outstanding
            debts, that improve financial system competitiveness, and
            that offer little discretion to governments are most effective.