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THE DEPENDENCE OF CEECs ON FOREIGN BANK CLAIMS: DIRECT AND INDIRECT RISKS OF CAPITAL WITHDRAWAL

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  • Sophie Brana

    ()

  • Delphine Lahet

    ()

Abstract

CEECs are characterised by a significant presence of foreign banks and by a marked dependence upon financing from foreign bankers. We show that this situation leaves these countries open to two types of financial risk, which have grown throughout the present decade. The first relates to the direct financial exposure between European creditor countries and CEECs and the risk of sudden withdrawal of capital. The second, which is indirect, is associated with the risk of regional contagion via spill-over effects and the common creditor channel. Based on a synthetic measure of these risks, we show that the degree of vulnerability of each country to the recent financial crisis could have been anticipated.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1023.

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Length: pages
Date of creation: 01 Nov 2011
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Handle: RePEc:wdi:papers:2011-1023

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Keywords: Eastern Europe; banking risks; foreign claims; contagion; subsidiaries.;

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  1. Fernando A. Broner & R. Gaston Gelos & Carmen M. Reinhart, 2005. "When in Peril, Retrench: Testing the Portfolio Channel of Contagion," Working Papers 207, Barcelona Graduate School of Economics.
  2. Haselmann, Rainer, 2006. "Strategies of foreign banks in transition economies," Emerging Markets Review, Elsevier, Elsevier, vol. 7(4), pages 283-299, December.
  3. De Haas, Ralph & van Lelyveld, Iman, 2009. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," MPRA Paper 13164, University Library of Munich, Germany.
  4. Ralph de Haas & Iman van Lelyveld, 2003. "Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis," DNB Staff Reports (discontinued), Netherlands Central Bank 109, Netherlands Central Bank.
  5. Ralph de Haas & Iman van Lelyveld, 2002. "Foreign Bank Penetration and Private Sector Credit in Central and Eastern Europe," International Finance, EconWPA 0209002, EconWPA.
  6. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc.
  7. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
  8. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(5), pages 891-911, May.
  9. Brzoza-Brzezina, Michal, 2005. "Lending booms in the new EU Member States: will euro adoption matter?," Working Paper Series, European Central Bank 0543, European Central Bank.
  10. Pierre-Richard AgÈnor, 2003. "Benefits and Costs of International Financial Integration: Theory and Facts," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 26(8), pages 1089-1118, 08.
  11. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2007. "Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters," NBER Chapters, National Bureau of Economic Research, Inc, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 121-170 National Bureau of Economic Research, Inc.
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