Financial Crisis, Economic Recovery and Banking Development in Former Soviet Union Economies

42 Pages Posted: 15 Apr 2003

See all articles by Haizhou Huang

Haizhou Huang

International Monetary Fund (IMF)

Dalia Marin

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Chenggang Xu

University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: February 2003

Abstract

This Paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy, and firms use non-bank finance - including trade credits and barter trade - to finance production. The banking failure arises due to the coexistence of adverse selection in a lemons credit market jointly with high government borrowing. The collapse of the treasury bills market in the financial crisis of August 1998 triggers a change in banks' lending behaviour. As a result output recovers which provides initial conditions for banking development.

Keywords: Banking development, institutional trap, non-banking finance

JEL Classification: D82, G21, G30, O16, P34

Suggested Citation

Huang, Haizhou and Marin, Dalia and Xu, Chenggang, Financial Crisis, Economic Recovery and Banking Development in Former Soviet Union Economies (February 2003). Available at SSRN: https://ssrn.com/abstract=395501

Haizhou Huang

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Dalia Marin (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 2446 (Phone)
+49 89 2180 6227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Chenggang Xu

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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