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Banks, Financial Liberalisation and Financial Crises in Emerging Markets

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  • Graham Bird
  • Ramkishen S. Rajan

Abstract

The East Asian financial crisis has raised a series of important issues. Amongst them is the question of the role of the banking sector and financial liberalisation in contributing to financial crises. How do weaknesses in the domestic banking sector, when combined with both domestic and international financial liberalisation, engender currency crises? What is lacking in the literature is a simple conceptual framework within which these connections can be conceptualised and drawn out and in which the role of banks is explicitly discussed. This paper seeks to provide just such a framework. Within it, international financial liberalisation can be seen as fuelling a boom in domestic credit, which leads to acute balance sheet problems for domestic banks, and exposes the country concerned to a currency crisis in the event of a sudden reversal of capital inflows, which banking weaknesses may itself trigger. Copyright Blackwell Publishers Ltd 2001.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 24 (2001)
Issue (Month): 7 (07)
Pages: 889-910

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Handle: RePEc:bla:worlde:v:24:y:2001:i:7:p:889-910

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  1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 473-500, June.
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  3. Velasco, Andres, 1987. "Financial crises and balance of payments crises : A simple model of the southern cone experience," Journal of Development Economics, Elsevier, Elsevier, vol. 27(1-2), pages 263-283, October.
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  5. Chinn, Menzie D. & Dooley, Michael P. & Shrestha, Sona, 1999. "Latin America and East Asia in the context of an insurance model of currency crises," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 659-681, August.
  6. Eichengreen, Barry & Arteta, Carlos, 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  7. G. Bird & R. Rajan, 2001. "Would International Currency Taxation and Currency Stabilisation in Developing Countries?," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(3), pages 21-38.
  8. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  9. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  10. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  11. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, Elsevier, vol. 19(1-2), pages 1-24.
  12. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1367-400, September.
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Citations

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Cited by:
  1. Bayraktar, Nihal & Yan Wang, 2004. "Foreign bank entry, performance of domestic banks, and sequence of financial liberalization," Policy Research Working Paper Series 3416, The World Bank.
  2. Tony Cavoli & Ramkishen S. Rajan, 2005. "THE CAPITAL INFLOWS PROBLEM IN SELECTED ASIAN ECONOMIES IN THE 1990s REVISITED : THE ROLE OF MONETARY STERILIZATION," Finance Working Papers 22562, East Asian Bureau of Economic Research.
  3. Ramkishen S. Rajan, 2007. "Managing new-style currency crises: the swan diagram approach revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(5), pages 583-606.
  4. Doris A. Oberdabernig, 2012. "Revisiting the Effects of IMF Programs on Poverty and Inequality," Department of Economics Working Papers wuwp144, Vienna University of Economics, Department of Economics.
  5. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 27(5), pages 978-995, December.
  6. Michael Frenkel & Lukas Menkhoff, 2004. "Are Foreign Institutional Investors Good for Emerging Markets?," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 27(8), pages 1275-1293, 08.
  7. Graham Bird & Ramkishen Rajan, 2002. "The Evolving Asian Financial Architecture," Centre for International Economic Studies Working Papers, University of Adelaide, Centre for International Economic Studies 2002-03, University of Adelaide, Centre for International Economic Studies.
  8. Alam, Shaista & Ahmed, Qazi Masood, 2012. "Exchange Rate Volatility and Aggregate Exports Demand through ARDL Framework: An Experience from Pakistan Economy," Review of Applied Economics, Review of Applied Economics, Review of Applied Economics, vol. 8(1).
  9. Saoussen Ben Gamra & Dominique Plihon, 2007. "Qualité Des Institutions, Libéralisation Et Crises Bancaires Le Cas Des Pays Émergents," CEPN Working Papers, HAL hal-00574136, HAL.
  10. Bird, Graham & Mandilaras, Alex, 2006. "Regional heterogeneity in the relationship between fiscal imbalances and foreign exchange market pressure," World Development, Elsevier, Elsevier, vol. 34(7), pages 1171-1181, July.
  11. Ma, Xufei & Yiu, Daphne W. & Zhou, Nan, 2014. "Facing global economic crisis: Foreign sales, ownership groups, and corporate value," Journal of World Business, Elsevier, Elsevier, vol. 49(1), pages 87-100.
  12. Ramkishen S. Rajan & Reza Y. Siregar & Tony Cavoli, 2006. "Financial Integration in East Asia: How Far? How Much Further to Go?," Working Papers id:372, eSocialSciences.
  13. Ramkishen S. Rajan & Reza Siregar & Iman Sugema, 2003. "Why was there a precrisis capital inflow boom in Southeast Asia?," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(3), pages 265-283.

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