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Lending of last resort, moral hazard and twin crises. Lessons from the Bulgarian financial crises 1996/1997

Author

Listed:
  • M. Berlemann
  • K. Hristov
  • Nikolay Nenovsky

    (LEO - Laboratoire d'Économie d'Orleans [UMR6586] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • M. Berlemann & K. Hristov & Nikolay Nenovsky, 2002. "Lending of last resort, moral hazard and twin crises. Lessons from the Bulgarian financial crises 1996/1997," Post-Print halshs-00260052, HAL.
    • Handle: RePEc:hal:journl:halshs-00260052
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    Cited by:

    1. Mudd Shannon & Pashev Konstantin & Valev Neven T, 2010. "The Effect of Loss Experiences in a Banking Crisis on Future Expectations and Behavior," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-21, November.
    2. Nikolay Nenovsky & Petar Chobanov & Gergana Mihaylova & Darina Koleva, 2008. "Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis," Working paper series 12008en, Agency for Economic Analysis and Forecasting.
    3. Alexander Chepurenko & Miklos Szanyi, 2021. "Parallel processes and divergent outcomes: the transformation of the economies of former Socialist countries," Working Papers 393, Leibniz Institut für Ost- und Südosteuropaforschung (Leibniz Institute for East and Southeast European Studies).
    4. Menna Bizuneh & Neven Valev, 2014. "The Devil you Know: Pegs vs Floats with Uncertain Outcomes," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 686-699, September.
    5. World Bank, 2008. "Bulgaria - Investment Climate Assessment : Volume 3. Technical Appendices," World Bank Publications - Reports 7867, The World Bank Group.
    6. Größl, Ingrid, 2005. "The interplay of legal and social norms and the failure of the bank credit market in Bulgaria," ZÖSS-Discussion Papers 04, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    7. Shannon Mudd & Neven Valev, 2009. "Once Bitten, Twice Shy: Experiences Of A Banking Crisis And Expectations Of Future Crises," William Davidson Institute Working Papers Series wp969, William Davidson Institute at the University of Michigan.
    8. Dimitar Dimitrov & Rumen Dobrinsky & Nasko Dochev & Rumyana Kolarova & Nikolay Markov & Boyko Nikolov, 2004. "Understanding Reform: A Country Study for Bulgaria," wiiw Balkan Observatory Working Papers 56, The Vienna Institute for International Economic Studies, wiiw.
    9. Isabel Schnabel, 2005. "The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2005_5, Max Planck Institute for Behavioral Economics.
    10. Economic Research Institute at BAS (ed.), 2020. "Economic Development and Policies – Realities and Prospects," ERI-BAS Books, Bulgarian Academy of Sciences - Economic Research Institute, number 36:p:1-884.
    11. Peter Ignatiev, 2004. "Theoretical Models of Financial Crises," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 110-130.
    12. Peter Ignatiev, 2003. "The banking crisis in Bulgaria in 1996-1997," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 66-88.

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    Keywords

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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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