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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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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp1023.pdf
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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
Date of revision:
Handle: RePEc:wdi:papers:2011-1023

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Related research

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

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  1. De Haas, Ralph & van Lelyveld, Iman, 2009. "Internal Capital Markets and Lending by Multinational Bank Subsidiaries," MPRA Paper 13164, University Library of Munich, Germany.
  2. Broner, Fernando A. & Gaston Gelos, R. & Reinhart, Carmen M., 2006. "When in peril, retrench: Testing the portfolio channel of contagion," Journal of International Economics, Elsevier, vol. 69(1), pages 203-230, June.
  3. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1927-1952, July.
  4. Francisco F. Vázquez & Carmen Reinhart & Marco Arena, 2007. "The Lending Channel in Emerging Economies: Are Foreign Banks Different?," IMF Working Papers 07/48, International Monetary Fund.
  5. R.T.A. de Haas & I.P.P. van Lelyveld, 2003. "Foreign Bank Penetration and Private Sector Credit in Central and Eastern Europe," DNB Staff Reports (discontinued) 91, Netherlands Central Bank.
  6. Haselmann, Rainer, 2006. "Strategies of foreign banks in transition economies," Emerging Markets Review, Elsevier, vol. 7(4), pages 283-299, December.
  7. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  8. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
  9. 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, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 121-170 National Bureau of Economic Research, Inc.
  10. Brzoza-Brzezina, Michal, 2005. "Lending booms in the new EU Member States: will euro adoption matter?," Working Paper Series 0543, European Central Bank.
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