nr 032- Banking Sector Strenght and the Transmission of Currency Crises
- DNB Working Papers
Date 12 April 2005
We show that, complementary to trade and financial linkages, the strength of the banking sector helps explain the transmission of currency crises. Specifically, we demonstrate that the Mexican, Thai, and Russian crises predominantly spread to countries with weaknesses in their banking sectors. At the same time, the role of banking sector strength varies per crisis; where the Mexican crisis spread to countries with a strong presence of foreign banks in domestic credit provision, the Thai crisis disproportionately contaminated countries where the banking sector was most sensitive to currency realignments, while the Russian crisis spread to countries with inefficiencies in the banking sector. JEL Classification: F30; F32; F34 Keywords: Banking Sector Strength, Currency Crisis, Transmission Channels.