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The Spread of the Financial Crisis to Central and Eastern Europe: Evidence from the BIS Data

In: Money, Banking and Financial Markets in Central and Eastern Europe

Author

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  • Dubravko Mihaljek

Abstract

Like other emerging markets, central and eastern European (CEE) economies weathered the financial crisis relatively well for over a year after it had started in major financial centres in August 2007. Growth and capital inflows were generally strong and financial markets for the most part performed well. But, starting in October 2008, the region got increasingly sucked into the global financial and economic maelstrom. As credit markets around the globe became dysfunctional in the aftermath of the collapse of Lehman Brothers, there was heavy and at times indiscriminate selling of emerging market assets, including CEE equities and bonds. There were also widespread expectations of a sudden stop in cross-border bank flows, drawing on the experience from previous emerging market crises. CEE appeared particularly vulnerable because it had financed its long expansion since 2002 to a major extent with foreign bank loans, which over time resulted in large external and internal imbalances in many countries. These vulnerabilities were starkly exposed in a bout of severe financial turmoil in February 2009, when it seemed likely that the CEE region would become another sad case in a long series of emerging market crises.

Suggested Citation

  • Dubravko Mihaljek, 2010. "The Spread of the Financial Crisis to Central and Eastern Europe: Evidence from the BIS Data," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Roman Matousek (ed.), Money, Banking and Financial Markets in Central and Eastern Europe, chapter 2, pages 5-31, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-30221-1_2
    DOI: 10.1057/9780230302211_2
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    Citations

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    Cited by:

    1. Debora Revoltella & Fabio Mucci & Dubravko Mihaljek, 2010. "Properly pricing country risk: a model for pricing long-term fundamental risk applied to central and eastern European countries," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 219-245.
    2. Herrmann, Sabine & Mihaljek, Dubravko, 2010. "The determinants of cross-border bank flows to emerging markets: New empirical evidence on the spread of financial crises," Discussion Paper Series 1: Economic Studies 2010,17, Deutsche Bundesbank.
    3. Dubravko Mihaljek, 2014. "Domestic bank intermediation in emerging market economies during the 2008-09 crisis," Financial Theory and Practice, Institute of Public Finance, vol. 38(4), pages 381-404.
    4. Niţoi, Mihai & Clichici, Dorina & Moagăr-Poladian, Simona, 2019. "The effects of prudential policies on bank leverage and insolvency risk in Central and Eastern Europe," Economic Modelling, Elsevier, vol. 81(C), pages 148-160.
    5. Menna Bizuneh & Menelik Geremew, 2021. "Assessing the Impact of Covid-19 Pandemic on Emerging Market Economies’ (EMEs) Sovereign Bond Risk Premium and Fiscal Solvency," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(4), pages 519-545, October.
    6. repec:zbw:bofitp:2011_003 is not listed on IDEAS

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