Bank-Firm Relationships and Contagious Banking Crises

Posted: 4 Dec 2001

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

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Abstract

This paper argues that in an open economy a banking system with close bank-firm relationships may be easily subject to contagious banking crises, because it is difficult to distinguish between "crony capitalism" and "good" main bank relationships. I show that, if international investors cannot distinguish the bank type, the distinction between crony capitalism and good main bank relationships becomes very fuzzy. In particular, the model can explain sequences of bank defaults within a country, even if the insolvent banks are very few ex ante, as well as sequences of banking crises among countries that are equally rated by international investors, but indeed differ in the ex ante solvency of their banking system.

Keywords: Keywords: Banking crises, contagion

JEL Classification: 052, 041, 018, F15

Suggested Citation

Giannetti, Mariassunta, Bank-Firm Relationships and Contagious Banking Crises. Journal of Money Credit and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=289087

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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+46 8 736 9607 (Phone)
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

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111 60 Stockholm
Sweden

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