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Credit Euroization in Eastern Europe: The ‘Foreign Funds’ Channel at Work

Author

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  • Peter R Haiss

    (1] Department of Global Business and Trade, Vienna University of Economics and Business, Vienna A-1090, Althanstraße 51, Austria.
    [2] IES Vienna – Institute for the International Education of Students, Johannesgasse 7, Vienna A-1010, Austria.[3] UniCredit Bank Austria, Department Corporates II, Schottengasse 6–8, Vienna A-1010, Austria.)

  • Wolfgang Rainer

    (1] Department of Global Business and Trade, Vienna University of Economics and Business, Vienna A-1090, Althanstraße 51, Austria.
    [2] Equity One Management GmbH, Marc-Aurel-Strasse 10/16, Vienna A-1010, Austria.)

Abstract

This paper aims to analyze the process of credit euroization in Emerging Europe and to investigate the motives of borrowers and lenders to engage in foreign currency lending. We empirically test for drivers of credit euroization in 13 European post-transition countries over the pre-crisis period 1999–2007. We find evidence that underpins the concept of the foreign funds channel, which asserts that credit euroization is driven by foreign borrowings, regardless of whether the funds are channeled into the system via subsidiaries of foreign banks (foreign bank channel) or via domestic banks borrowing abroad.

Suggested Citation

  • Peter R Haiss & Wolfgang Rainer, 2012. "Credit Euroization in Eastern Europe: The ‘Foreign Funds’ Channel at Work," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(3), pages 471-505, September.
    • Handle: RePEc:pal:compes:v:54:y:2012:i:3:p:471-505
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    References listed on IDEAS

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    1. repec:onb:oenbwp:y:2006:i:2:b:1 is not listed on IDEAS
    2. repec:onb:oenbwp:y:2006:i:11:b:1 is not listed on IDEAS
    3. Peter Backé & Doris Ritzberger-Grünwald & Helmut Stix, 2007. "The Euro on the Road East: Cash, Savings and Loans," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 114-127.
    4. Peter Backé & Thomas Reininger, 2006. "Main Features of Recent Banking Sector Developments in Selected Southeastern European Countries," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 11, pages 66-82.
    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. Peter Backé, 2006. "Bank Intermediation in Southeastern Europe: Depth and Structure," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 48-68.
    7. Bank for International Settlements, 2005. "Foreign direct investment in the financial sector - experiences in Asia, central and eastern Europe and Latin America," CGFS Papers, Bank for International Settlements, number 25, december.
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    Cited by:

    1. Laura Cojocaru & Evangelos M. Falaris & Saul D. Hoffman & Jeffrey B. Miller, 2016. "Financial System Development and Economic Growth in Transition Economies: New Empirical Evidence from the CEE and CIS Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 223-236, January.
    2. Mariya Hake & Fernando Lopez-Vicente & Luis Molina, 2014. "Do the Drivers of Loan Dollarization Differ between CESEE and Latin America? A Meta-Analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-35.
    3. Bitar, Joseph, 2021. "Foreign Currency Intermediation: Systemic Risk and Macroprudential Regulation," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(2).
    4. M. Frömmel & M. Luetje, 2014. "Are exporting firms always a good hedge against currency risk? Evidence from Central and Eastern European Countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/873, Ghent University, Faculty of Economics and Business Administration.
    5. Nilgun Caglarirmak Uslu & Sevcan Kapkara, 2019. "The Determinants of Credit Dolarization: Turkish Case," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 148-167, December.
    6. Škrabić Perić, Blanka & Rimac Smiljanić, Ana & Aljinović, Zdravka, 2018. "Credit risk of subsidiaries of foreign banks in CEE countries: Impacts of the parent bank and home country economic environment," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 49-69.

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