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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.

Suggested Citation

  • Giannetti, Mariassunta, 2003. " Bank-Firm Relationships and Contagious Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 239-261, April.
  • Handle: RePEc:mcb:jmoncb:v:35:y:2003:i:2:p:239-61
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    References listed on IDEAS

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    Cited by:

    1. Giannetti, Mariassunta, 2003. "On the Causes of Overlending: Are Guarantees on Deposits the Culprit?," CEPR Discussion Papers 4055, C.E.P.R. Discussion Papers.
    2. Lars Norden & Stefan van Kampen, 2015. "The Dynamics of Trade Credit and Bank Debt in SME Finance: International Evidence," RBA Annual Conference Volume,in: Angus Moore & John Simon (ed.), Small Business Conditions and Finance Reserve Bank of Australia.
    3. Colombatto, Enrico & Melnik, Arie & Monticone, Chiara, "undated". "Relationships and the availability of credit to New Small Firms," Working Papers WP2011/11, University of Haifa, Department of Economics, revised 23 Oct 2011.
    4. 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, July.
    5. Martin, Alberto & Taddei, Filippo, 2013. "International capital flows and credit market imperfections: A tale of two frictions," Journal of International Economics, Elsevier, vol. 89(2), pages 441-452.
    6. 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.
    7. Iosifidi, Maria & Kokas, Sotirios, 2015. "Who lends to riskier and lower-profitability firms? Evidence from the syndicated loan market," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 14-21.
    8. Nier, Erlend W., 2005. "Bank stability and transparency," Journal of Financial Stability, Elsevier, vol. 1(3), pages 342-354, April.
    9. Filippo Taddei, 2013. "International Capital Flows, Financial Frictions and Welfare," 2013 Meeting Papers 1160, Society for Economic Dynamics.
    10. 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).
    11. Karima Bouaiss & Catherine Refait-Alexandre & Hervé Alexandre, 2017. "Will Bank Transparency really Help Financial Markets and Regulators?," Working Papers hal-01637917, HAL.
    12. repec:dau:papers:123456789/4060 is not listed on IDEAS
    13. Victor Vaugirard, 2005. "Crony Capitalism and Sovereign Default," Open Economies Review, Springer, vol. 16(1), pages 77-99, January.
    14. 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.

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