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Twin Crises and the Intermediary Role of Banks

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  • Buch, Claudia M
  • Heinrich, Ralph P

Abstract

Banking and balance of payments crises often happen simultaneously. We show that the impact of a devaluation on the net worth of commercial banks with a short open foreign exchange position speeds up the timing of a balance of payments crisis. In an asymmetric information framework, domestic commercial banks have to pay a positive risk premium on the international capital market which is determined by their net worth. Some stylized facts from selected crises episodes are presented in order to gauge the empirical relevance of the effects that have been stressed in the model. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.

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  • 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 313-323, October.
    • Handle: RePEc:ijf:ijfiec:v:4:y:1999:i:4:p:313-23
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    Cited by:

    1. Bleaney, Michael & Bougheas, Spiros & Skamnelos, Ilias, 2008. "A model of the interactions between banking crises and currency crises," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 695-706, September.
    2. Flood, Robert P. & Marion, Nancy P., 2004. "A model of the joint distribution of banking and currency crises," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 841-865, October.
    3. Bindseil, Ulrich & Winkler, Adalbert, 2012. "Dual liquidity crises under alternative monetary frameworks: a financial accounts perspective," Working Paper Series 1478, European Central Bank.
    4. Mirjana Jemović & Srđan Marinković, 2021. "Determinants of financial crises—An early warning system based on panel logit regression," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 103-117, January.
    5. Schmidt Paul-Günther, 2001. "Ursachen systemischer Bankenkrisen: Erklärungsversuche, empirische Evidenz und wirtschaftspolitische Konsequenzen," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 52(1), pages 239-280, January.
    6. Dan Costin NIŢESCU & Florin Alexandru DUNĂ & Adriana Daniela CIUREL, 2020. "Banking sector and bank liquidity – key actors within financial crises?," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(623), S), pages 147-168, Summer.
    7. Ryota Nakatani, 2016. "Twin Banking and Currency Crises and Monetary Policy," Open Economies Review, Springer, vol. 27(4), pages 747-767, September.
    8. Buch, Claudia M., 1999. "Chilean-type capital controls: A building block of the new international financial architecture?," Kiel Discussion Papers 350, Kiel Institute for the World Economy (IfW Kiel).
    9. M. Berlemann & Nikolay Nenovsky, 2003. "Lending of First Versus Lending of Last Resort: The Bulgarian Financial Crisis of 1996/1997," Post-Print halshs-00260241, HAL.
    10. Buch, Claudia M., 2001. "Financial Market Integration in a Monetary Union," Kiel Working Papers 1062, Kiel Institute for the World Economy (IfW Kiel).
    11. 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.
    12. Claudia M. Buch & Ralph P. Heinrich & Lusine Lusinyan & Mechthild Schrooten, 2000. "Russia's Debt Crisis and the Unofficial Economy," Discussion Papers of DIW Berlin 208, DIW Berlin, German Institute for Economic Research.
    13. Mechthild Schrooten, 1999. "Von der Währungs- zur Finanzkrise - ein kurzer Überblick über neuere theoretische Ansätze," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(3), pages 321-331.
    14. Janice Boucher Breuer, 2004. "An Exegesis on Currency and Banking Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 18(3), pages 293-320, July.
    15. Buch, Claudia M. & Heinrich, Ralph P. & Pierdzioch, Christian, 2001. "Globalisierung der Finanzmärkte: Freier Kapitalverkehr oder Tobin-Steuer?," Kiel Discussion Papers 381, Kiel Institute for the World Economy (IfW Kiel).
    16. Carroll Howard GRIFFIN, 2010. "The Role Of Latin American Banks In The Region’s Currency Crises," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 5, pages 55-71, June.

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