Financial Crisis, Economic Recovery, and Banking Development in Russia, and other FSU Countries

Huang, Haizhou; Marin, Dalia and Xu, Chenggang (June 2004): Financial Crisis, Economic Recovery, and Banking Development in Russia, and other FSU Countries. SFB/TR 15 Discussion Paper No. 79

Abstract

This paper provides a unified analysis for the onset of the 1998 financial crisis and the strong economic recovery afterward in Russia and other former Soviet Union countries. Before the crisis a banking failure arose owing to the coexistence of a lemons credit market and high government borrowing. In a lemons credit market low credit risk firms switched from bank to nonbank finance, including trade credits and barter trade, generating an externality on banks’ interest rates. The collapse of the treasury bills market in the financial crisis triggered a change in banks’ lending behavior, providing initial conditions for banking development.

• Item Type: Paper
• Keywords: banking development, institutional trap, financial crisis
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B5 - Weltwirtschaftliche Integration und die neue Firmenorganisation; Economics; Economics > Chairs > Chair of International Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G3, G21, P34, O16, D82
• Language: English