Who is to blame for the credit crunch: foreign ownership or foreign funding?
Erik Feyen, Raquel Letelier, Inessa Love, Samuel Munzele Maimbo, Roberto Rocha 15 March 2014
Eastern Europe was hit especially hard by the credit crunch during the global financial crisis. This column presents new evidence suggesting that reliance on foreign funding was more important than foreign bank ownership per se in exacerbating the post-crisis credit contraction. These findings point to the need to put more emphasis on the discussion of bank business models, regulatory standards, and supervisory arrangements.
From boom to crunch
Although most developing countries around the world experienced a severe contraction of bank credit during the recent global financial crisis, the Eastern Europe and Central Asia (ECA) region was disproportionately hit after it had experienced very high credit growth (Figure 1).
Figure 1. Banking system trends in ECA
Financial markets Global crisis International finance
Credit crunch, global financial crisis, banking, Eastern Europe, cross-border banking, credit growth, Central Asia