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Banking Sector Strenght and the Transmission of Currency Crises

  • Allard Bruinshoofd
  • Bertrand Candelon
  • Katharina Raabe

We show that, complementary to trade and financial linkages, the strength of the banking sector helps explain the transmission of currency crises. Specifically, we demonstrate that the Mexican, Thai, and Russian crises predominantly spread to countries with weaknesses in their banking sectors. At the same time, the role of banking sector strength varies per crisis; where the Mexican crisis spread to countries with a strong presence of foreign banks in domestic credit provision, the Thai crisis disproportionately contaminated countries where the banking sector was most sensitive to currency realignments, while the Russian crisis spread to countries with inefficiencies in the banking sector.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%2032_tcm46-146689.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 032.

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Date of creation: Apr 2005
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Handle: RePEc:dnb:dnbwpp:032
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. Morgan, Donald & Rime, Bertrand & Strahan, Philip E., 2004. "Bank Integration and State Business Cycles," SIFR Research Report Series 30, Institute for Financial Research.
  2. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  3. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises; The Early Warnings of Distress," IMF Working Papers 99/178, International Monetary Fund.
  4. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
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  7. Reuven Glick & Andrew K. Rose, 1998. "Contagion and trade: why are currency crises regional?," Pacific Basin Working Paper Series 98-03, Federal Reserve Bank of San Francisco.
  8. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
  9. Ranil Salgado & Luca Antonio Ricci & Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 00/55, International Monetary Fund.
  10. Damien Neven, 2002. "Bank Performance in Transition Economies," IHEID Working Papers 07-2002, Economics Section, The Graduate Institute of International Studies.
  11. Graciela L. Kaminsky & Carmen Reinhart & Carlos A. Vegh, 2003. "The Unholy Trinity of Financial Contagion," NBER Working Papers 10061, National Bureau of Economic Research, Inc.
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  13. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  14. R. T.A. de Haas & I. P.P van Lelyveld, 2004. "Foreign Bank Penetration and Private Sector Credit in Central and Eastern Europe," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 125-151, August.
  15. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  16. Janice Boucher Breuer, 2004. "An Exegesis on Currency and Banking Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 293-320, 07.
  17. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  18. Massimo Sbracia & Andrea Zaghini, 2001. "The Role of the Banking System in the International Transmission of Shocks," Temi di discussione (Economic working papers) 409, Bank of Italy, Economic Research and International Relations Area.
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