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Iran Has a Slow Motion Banking Crisis

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  • Adnan Mazarei

    (Peterson Institute for International Economics)

Abstract

Suffering under Western sanctions and security challenges, Iran faces problems as well from its fragile banking system, which has been languishing for decades. Liquidity and solvency weaknesses pose a growing risk to the country’s financial stability. The sanctions reimposed by the United States in 2018 have heightened these vulnerabilities, but the problems also result from the heavy-handed role of the state, corruption, and the Central Bank of Iran’s failure to regulate and supervise the system. Iran’s ability to avoid a run on its banks is aided by their reliance on liquidity assistance, deposit insurance, and regulatory forbearance from the central bank. Depositors are forced to be patient because they have limited options to invest elsewhere. Iran has thus avoided a full-blown banking crisis. But the situation is not sustainable. Banks remain susceptible to external shocks, which could come from a complete halt to oil exports or war.

Suggested Citation

  • Adnan Mazarei, 2019. "Iran Has a Slow Motion Banking Crisis," Policy Briefs PB19-8, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb19-8
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    File URL: https://www.piie.com/publications/policy-briefs/iran-has-slow-motion-banking-crisis
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    Cited by:

    1. Dario Laudati & M. Hashem Pesaran, 2023. "Identifying the effects of sanctions on the Iranian economy using newspaper coverage," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 271-294, April.

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