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Francisco Ramon-Ballester

30 March 2007
WORKING PAPER SERIES - No. 744
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Abstract
This paper empirically investigates the extent to which the financial linkages of Latin American banks with the exterior are influenced by political risk and deposit dollarisation. We find that the sum of banks' foreign assets and liabilities is a function of risk-return considerations and excess domestic credit demand. An increase in political risk is shown to be associated with a build-up of foreign positions by the banking sector, but this adverse effect on the banking system is mitigated in economies with a high share of dollarised deposits. These relationships largely hold when the determinants of foreign assets and liabilities are estimated separately, with risk-induced capital flight being moderated by a high degree of deposit dollarisation. While changes in overall country risk including the risk of macro collapse drive official capital outflows, for a wider measure of capital flight including informal flows only changes in political risk matter. In each case, deposit dollarisation is shown to possess a risk-mitigating property. The results suggest caution with active dedollarisation strategies in highly dollarised economies where political instability remains an issue.
JEL Code
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
20 August 2015
OCCASIONAL PAPER SERIES - No. 164
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Abstract
This paper reviews financial stability challenges in countries preparing for EU membership, i.e. Albania, Bosnia and Herzegovina, Kosovo*, Iceland, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The paper has been prepared by an expert group of staff from the European System of Central Banks (ESCB) in which experts from EU candidate and potential candidate country central banks also participated. The paper finds that near-term challenges to financial stability primarily relate to credit risks from the generally weak economic dynamics in combination with already high non-performing loan burdens in many banking systems, especially in the Western Balkans. In the medium-term, challenges to financial stability stem from indirect market risks to banks related to foreign currency lending as well as lingering exposures to funding risks, with Western Balkan economies again appearing as relatively more vulnerable. Looking further ahead, the paper highlights that the magnitude of the challenge to reach a
JEL Code
F31 : International Economics→International Finance→Foreign Exchange
F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation