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Systemic Risk and Foreign Currency Positions of Banks: Evidence from Emerging Europe

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  • Alin Marius Andrieş
  • Simona Nistor

Abstract

This article investigates the impact of foreign currency (FX) denominated assets and liabilities on systemic risk by using a unique hand-collected dataset of bank-level FX positions for the period 2005–2012. The sample consists of banks from Central and Eastern Europe with large share of FX exposures on the balance sheet. Empirical findings indicate that systemic risk is dependent on the currency choice of financial institutions. While FX positions denominating in EUR and USD do not pose systemic risk concerns, FX positions denominating in exotic currencies like CHF significantly enhance the banks’ systemic importance. The negative influence of CHF positions might be reduced through prudent corporate governance mechanisms, tight restrictions on banking activity, and more restrictive limits on foreign currency lending in the home countries of the bank holding companies.

Suggested Citation

  • Alin Marius Andrieş & Simona Nistor, 2018. "Systemic Risk and Foreign Currency Positions of Banks: Evidence from Emerging Europe," Eastern European Economics, Taylor & Francis Journals, vol. 56(5), pages 382-421, September.
  • Handle: RePEc:mes:eaeuec:v:56:y:2018:i:5:p:382-421
    DOI: 10.1080/00128775.2018.1440179
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