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Bank-Firm Relationships and Contagious Banking Crises

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  • Giannetti, Mariassunta

Abstract

This paper argues that in an open economy a banking system with close bank-firm relationships may be easily subject to contagious banking crises because it is difficult to distinguish between "crony capitalism" and "good" main bank relationships. 1 show that, if international investors cannot distinguish the bank type, the distinction between crony capitalism and good main bank relationships becomes very fuzzy. In particular, the model can explain sequences of bank defaults within a country, even if the insolvent banks are very few ex ante, as well as sequences of banking crises among countries that are equally rated by international investors, but indeed differ in the ex ante solvency of their banking system.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 35 (2003)
Issue (Month): 2 (April)
Pages: 239-61

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Handle: RePEc:mcb:jmoncb:v:35:y:2003:i:2:p:239-61

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Citations

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Cited by:
  1. Ari Hyytinen & Tuomas Takalo, 2004. "Preventing Systemic Crises through Bank Transparency," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 33(2), pages 257-273, 07.
  2. Bouaiss, Karima & Refait-Alexandre, Catherine & Alexandre, Hervé, 2010. "Will Bank Transparency really Help Financial Markets and Regulators?," Economics Papers from University Paris Dauphine 123456789/4060, Paris Dauphine University.
  3. Alberto Martin & Filippo Taddei, 2012. "International Capital Flows and Credit Market Imperfections: a Tale of Two Frictions," Working Papers 518, Barcelona Graduate School of Economics.
  4. Giannetti, Mariassunta, 2007. "Financial liberalization and banking crises: The role of capital inflows and lack of transparency," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 32-63, January.
  5. Victor VAUGIRARD, 2007. "Financial instability, political crises and contagion," Discussion Papers (REL - Recherches Economiques de Louvain) 2007041, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Giannetti, Mariassunta, 2003. "On the Causes of Overlending: Are Guarantees on Deposits the Culprit?," CEPR Discussion Papers 4055, C.E.P.R. Discussion Papers.
  7. Filippo Taddei, 2013. "International Capital Flows, Financial Frictions and Welfare," 2013 Meeting Papers 1160, Society for Economic Dynamics.
  8. Colombatto, Enrico & Melnik, Arie & Monticone, Chiara, 2011. "Relationships and The Availability of Credit To New Small Firms," IEL Working Papers 6, Institute of Public Policy and Public Choice - POLIS.
  9. Vaugirard, Victor, 2007. "Informational contagion of bank runs in a third-generation crisis model," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 403-429, April.
  10. Victor Vaugirard, 2005. "Crony Capitalism and Sovereign Default," Open Economies Review, Springer, vol. 16(1), pages 77-99, January.
  11. Nier, Erlend W., 2005. "Bank stability and transparency," Journal of Financial Stability, Elsevier, vol. 1(3), pages 342-354, April.

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