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THE DEPENDENCE OF CEECs ON FOREIGN BANK CLAIMS: DIRECT AND INDIRECT RISKS OF CAPITAL WITHDRAWAL

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  • Sophie Brana

    ()

  • Delphine Lahet

    ()

Abstract

CEECs are characterised by a significant presence of foreign banks and by a marked dependence upon financing from foreign bankers. We show that this situation leaves these countries open to two types of financial risk, which have grown throughout the present decade. The first relates to the direct financial exposure between European creditor countries and CEECs and the risk of sudden withdrawal of capital. The second, which is indirect, is associated with the risk of regional contagion via spill-over effects and the common creditor channel. Based on a synthetic measure of these risks, we show that the degree of vulnerability of each country to the recent financial crisis could have been anticipated.

Suggested Citation

  • Sophie Brana & Delphine Lahet, 2011. "THE DEPENDENCE OF CEECs ON FOREIGN BANK CLAIMS: DIRECT AND INDIRECT RISKS OF CAPITAL WITHDRAWAL," William Davidson Institute Working Papers Series wp1023, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2011-1023
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/133039/1/wp1023.pdf
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    References listed on IDEAS

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    1. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2007. "Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 121-170 National Bureau of Economic Research, Inc.
    2. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
    3. Broner, Fernando A. & Gaston Gelos, R. & Reinhart, Carmen M., 2006. "When in peril, retrench: Testing the portfolio channel of contagion," Journal of International Economics, Elsevier, vol. 69(1), pages 203-230, June.
    4. Haselmann, Rainer, 2006. "Strategies of foreign banks in transition economies," Emerging Markets Review, Elsevier, vol. 7(4), pages 283-299, December.
    5. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc.
    6. Pierre-Richard AgÈnor, 2003. "Benefits and Costs of International Financial Integration: Theory and Facts," The World Economy, Wiley Blackwell, vol. 26(8), pages 1089-1118, August.
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    More about this item

    Keywords

    Eastern Europe; banking risks; foreign claims; contagion; subsidiaries.;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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