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Bank deleveraging : causes, channels, and consequences for emerging market and developing countries

  • Feyen, Erik
  • Kibuuka, Katie
  • Otker-Robe, Inci

Just before the 2008-09 global financial crisis, policymakers were concerned about the rapid growth of bank credit, particularly in Europe; now worry centers on a potential global credit crunch led by European banking institutions. Overall, credit conditions across Europe deteriorated markedly in late 2011. Spillover effects are being felt around the globe and imply significant channels through which deleveraging could have disruptive consequences for credit conditions in emerging markets, particularly in emerging Europe. Significant liquidity support provided by the European Central Bank was a"game changer,"at least in the short term, as it helped revive markets and limited the risk of disorderly deleveraging. However, the extent, speed, and impact of European bank deleveraging remain highly dependent on the evolution of economic growth and market conditions, which in turn are guided by the ultimate impact of European Central Bank liquidity support, resolution of the sovereign debt crisis within the Euro Area, and the ability of the European rescue fund to provide an effective firewall against contagion.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6086.

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Date of creation: 01 Jun 2012
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Handle: RePEc:wbk:wbrwps:6086
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  1. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises," NBER Working Papers 12101, National Bureau of Economic Research, Inc.
  2. Jonathan Fiechter & Inci Ötker & Anna Ilyina & Michael Hsu & Andre Santos & Jay Surti, 2011. "Subsidiaries or Branches; Does One Size Fit All?," IMF Staff Discussion Notes 11/04, International Monetary Fund.
  3. Bijsterbosch, Martin & Dahlhaus, Tatjana, 2011. "Determinants of credit-less recoveries," Working Paper Series 1358, European Central Bank.
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