Lending of first versus lending of last resort: The Bulgarian financial crisis of 1996/1997
In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. However, in comparison to the Asian, the Russian or the recent Tango Crisis the Bulgarian Crisis did arouse relatively low international interest. We argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis involving both a currency and a banking crisis. While the Bulgarian Crisis had some properties of so-called fundamental crises, as explained by first generation models of currency crises, the severity of the crisis was primarily due to systematic moral hazard behaviour of the banking sector. Special attention is paid to the crucial role the Bulgarian National Bank played in the pre-crisis and during the crisis period when acting more as a lender of first than a lender of last resort. 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 making the country less prone to a financial crisis in the future.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: 01062 Dresden|
Phone: ++49 351 463 2196
Fax: ++49 351 463 7739
Web page: http://www.tu-dresden.de/wiwi/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Corrinne Ho, 2002. "A survey of the institutional and operational aspects of modern-day currency boards," BIS Working Papers 110, Bank for International Settlements.
- Eduard Hochreiter & Tadeusz Kowalski, 2000.
"Central Banks in European Emerging Market Economies in the 1990s,"
40, Oesterreichische Nationalbank (Austrian Central Bank).
- Eduard Hochreiter & Tadeusz Kowalski, 2000. "Central banks in European emerging market economies in the 1990s," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(212), pages 45-70.
- Eduard Hochreiter & Tadeusz Kowalski, 2000. "Central banks in European emerging market economies in the 1990s," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(212), pages 45-70.
- Caprio, Gerard Jr. & Dooley, Michael & Leipziger, Danny & Walsh, Carl, 1996.
"The lender of last resort function under a currency board : the case of Argentina,"
Policy Research Working Paper Series
1648, The World Bank.
- Gerald Caprio & Michael Dooley & Danny Leipziger & Carl Walsh, 1996. "The lender of last resort function under a currency board: The case of Argentina," Open Economies Review, Springer, vol. 7(1), pages 625-650, March.
- Michael D. Bordo, 1989.
"The lender of last resort: some historical insights,"
234, Federal Reserve Bank of Chicago.
- Michael D. Bordo, 1989. "The Lender of Last Resort: Some Historical Insights," NBER Working Papers 3011, National Bureau of Economic Research, Inc.
- Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
- Koford, Kenneth, 2000. "Citizen restraints on "Leviathan" government: transition politics in Bulgaria," European Journal of Political Economy, Elsevier, vol. 16(2), pages 307-338, June.
- Hermes, Niels & Lensink, Robert, 2000. "Financial system development in transition economies," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 507-524, April.
- Nenovsky, Nikolay & Hristov, Kalin, 2002. "The new currency boards and discretion: empirical evidence from Bulgaria," Economic Systems, Elsevier, vol. 26(1), pages 55-72, April.
- Goodhart, C A E, 1987. "Why Do Banks Need a Central Bank?," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 75-89, March.
- de Haan, Jakob & Berger, Helge & van Fraassen, Erik, 2001.
"How to reduce inflation: an independent central bank or a currency board? The experience of the Baltic countries,"
Emerging Markets Review,
Elsevier, vol. 2(3), pages 218-243, September.
- Jacob De Haan & Helge Berger & Erik Van Fraassen, 2001. "How to Reduce Inflation: An Independent Central Bank or A Currency Board? The Experience of the Baltic Countries," LICOS Discussion Papers 9601, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- Roberto Chang & Andres Velasco, 1998.
"Financial crises in emerging markets: a canonical model,"
FRB Atlanta Working Paper
98-10, Federal Reserve Bank of Atlanta.
- Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers 98-21, C.V. Starr Center for Applied Economics, New York University.
- Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998.
"Paper Tigers? A Model of the Asian Crisis,"
NBER Working Papers
6783, National Bureau of Economic Research, Inc.
- 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.
- Chang, Roberto & Velasco, Andres, 2001. "Monetary policy in a dollarized economy where balance sheets matter," Journal of Development Economics, Elsevier, vol. 66(2), pages 445-464, December.
- Charles A. E. Goodhart & Haizhou Huang, 1999.
"A model of the lender of last resort,"
Federal Reserve Bank of San Francisco.
- Rudiger Dornbusch & Jacob A. Frenkel, 1982.
"The Gold Standard and the Bank of England in the Crisis of 1847,"
NBER Working Papers
1039, National Bureau of Economic Research, Inc.
- Rudiger Dornbusch & Jacob A. Frenkel, 1984. "The Gold Standard and the Bank of England in the Crisis of 1847," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 233-276 National Bureau of Economic Research, Inc.
- Allan Drazen, 2000.
"Political Contagion in Currency Crises,"
in: Currency Crises, pages 47-67
National Bureau of Economic Research, Inc.
- Kornai, Janos, 2000.
"What the Change of System from Socialism to Capitalism Does and Does Not Mean,"
3634160, Harvard University Department of Economics.
- Jànos Kornai, 2000. "What the Change of System from Socialism to Capitalism Does and Does Not Mean," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 27-42, Winter.
- Edda Zoli, 2001. "Cost and Effectiveness of Banking Sector Restructuring in Transition Economies," IMF Working Papers 01/157, International Monetary Fund.
- Kenneth Koford, 2000. "Citizen Restraints on “Leviathan” Government: Transition Politics in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 30-62.
- Nikolay Nenovsky & Y. Rizopoulos, 2003. "Extreme Monetary Regime Change. Evidence from Currency Board Introduction in Bulgaria," Post-Print halshs-00259844, HAL.
- Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
- Zeljko Sevic (ed.), 2002. "Banking Reforms in South-East Europe," Books, Edward Elgar Publishing, number 2095.
- Kenneth Koford & Adrian E. Tschoegl, 1997. "Problems of Bank Lending in Bulgaria: Information Asymmetry and Institutional Learning," Center for Financial Institutions Working Papers 97-41, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Komulainen, Tuomas, 2001. "Currency crises in emerging markets : Capital flows and herding behaviour," BOFIT Discussion Papers 10/2001, Bank of Finland, Institute for Economies in Transition.
- Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996.
"Contagious Currency Crises,"
CEPR Discussion Papers
1453, C.E.P.R. Discussion Papers.
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Buch, Claudia M & Heinrich, Ralph P, 1999. "Twin Crises and the Intermediary Role of Banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(4), pages 313-23, October.
- Michael P. Dooley, 1998.
"A model of crises in emerging markets,"
International Finance Discussion Papers
630, Board of Governors of the Federal Reserve System (U.S.).
- Dobrinsky, Rumen, 2000. "The Transition Crisis in Bulgaria," Cambridge Journal of Economics, Oxford University Press, vol. 24(5), pages 581-602, September.
- Marvin Goodfriend & Robert G. King, 1988.
"Financial deregulation, monetary policy, and central banking,"
Federal Reserve Bank of Richmond, issue May, pages 3-22.
- Goodfriend, M. & King, R.G., 1988. "Financial Deregulation, Monetary Policy, And Central Banking," RCER Working Papers 121, University of Rochester - Center for Economic Research (RCER).
- Marvin Goodfriend & Robert G. King, 1988. "Financial deregulation, monetary policy, and central banking," Working Paper 88-01, Federal Reserve Bank of Richmond.
- K. Hristov & Nikolay Nenovsky, 2002. "New Currency Boards and Discretion. The empirical Evidence from Bulgaria," Post-Print halshs-00259875, HAL.
- G. Caporale & K. Hristov & J. Miller & Nikolay Nenovsky & B. Petrov, 2002. "The Banking System in Bulgaria," Post-Print halshs-00259479, HAL.
- Nikolaynenovsky Kalinhristov & Mihail Mihaylov, 2002. "Comparing the Institutional and Organizational Design of Currency Boards in Transition Countries," Eastern European Economics, M.E. Sharpe, Inc., vol. 40(1), pages 6-35, January.
- K. Hristov & M. Mihaylov & Nikolay Nenovsky, 2002. "Comparing institutional and organizational design of Currency Boards in transition countries," Post-Print halshs-00259880, HAL.
- Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:zbw:tuddps:1103. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.