IDEAS home Printed from
   My bibliography  Save this article

Pure contagion effects in international banking: The case of BCCI’s failure



We test for pure contagion effects in international banking arising from the failure of the Bank of Credit and Commerce International (BCCI), one of the largest bank failures in the world. We focused on large individual banks in three developed countries where BCCI had established operations, namely the UK, the US, and Canada. Using event study methodology, we tested for contagion effects using time windows surrounding several known BCCI-related announcements. Our analysis provides strong evidence of pure contagion effects in the UK, which have arisen prior to the official closure date. In contrast, there is no evidence of pure contagion effects in the US and Canada.

Suggested Citation

  • Angelos Kanas, 2005. "Pure contagion effects in international banking: The case of BCCI’s failure," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 101-123, May.
  • Handle: RePEc:cem:jaecon:v:8:y:2005:n:1:p:101-123

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
    2. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Madura, Jeff & Tucker, Alan L. & Zarruk, Emilio, 1992. "Reaction of bank share prices to the Third-World debt reduction plan," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 853-868, September.
    4. Slovin, Myron B. & Jayanti, Subbarao V., 1993. "Bank capital regulation and the valuation effects of Latin American debt moratoriums," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 159-174, February.
    5. Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992. " Is Fairly Priced Deposit Insurance Possible?," Journal of Finance, American Finance Association, vol. 47(1), pages 227-245, March.
    6. Aharony, Joseph & Swary, Itzhak, 1983. "Contagion Effects of Bank Failures: Evidence from Capital Markets," The Journal of Business, University of Chicago Press, vol. 56(3), pages 305-322, July.
    7. Craig Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings 633, Federal Reserve Bank of Chicago.
    8. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-592, June.
    9. Smirlock, Michael & Kaufold, Howard, 1987. "Bank Foreign Lending, Mandatory Disclosure Rules, and the Reaction of Bank Stock Prices to the Mexican Debt Crisis," The Journal of Business, University of Chicago Press, vol. 60(3), pages 347-364, July.
    10. Robert E. Lamy & G. Rodney Thompson, 1986. "Penn Square, Problem Loans, And Insolvency Risk," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(2), pages 103-111, June.
    11. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    12. Akhigbe, Aigbe & Madura, Jeff, 2001. "Why do contagion effects vary among bank failures?," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 657-680, April.
    13. Swary, Itzhak, 1986. "Stock Market Reaction to Regulatory Action in the Continental Illinois Crisis," The Journal of Business, University of Chicago Press, vol. 59(3), pages 451-473, July.
    14. Aharony, Joseph & Swary, Itzhak, 1996. "Additional evidence on the information-based contagion effects of bank failures," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 57-69, January.
    15. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January.
    16. Jayanti, S. V. & Whyte, Ann Marie & Quang Do, A., 1996. "Bank failures and contagion effects: Evidence from Britain and Canada," Journal of Economics and Business, Elsevier, vol. 48(2), pages 103-116, May.
    17. Masulis, Ronald W., 1980. "The effects of capital structure change on security prices : A study of exchange offers," Journal of Financial Economics, Elsevier, vol. 8(2), pages 139-178, June.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Stefano Bonini & Diana Boraschi, 2010. "Corporate Scandals and Capital Structure," Journal of Business Ethics, Springer, vol. 95(2), pages 241-269, September.
    2. Dany Bahar & Miguel Angel Santos & Carlos Alberto Molina, 2017. "Fool’s Gold: Currency Devaluations and Stock Prices of Multinational Companies Operating in Venezuela," CID Working Papers 83a, Center for International Development at Harvard University.

    More about this item


    bank failures; pure contagion effects; event study methodology; abnormal returns;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cem:jaecon:v:8:y:2005:n:1:p:101-123. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.