Banks During the Argentine Crisis: Were They All Hurt Equally? Did They All Behave Equally?

Adolfo Barajas, Emiliano Basco, V Hugo Juan-Ramón and Carlos Quarracino

IMF Staff Papers, 2007, vol. 54, issue 4, pages 621-662

Abstract: The simple answer to both questions in the title of this paper: No. We concentrate on three key aspects of the banking system's difficulties during the 2001–02 crisis. Two are related to bank behavior (increasing dollarization of the balance sheet and expanding exposure to the government), and the other is related to the degree by which banks were hurt by depositor preferences, specifically, the run on deposits during 2001. We find that there was substantial cross-bank variation, that is, not all banks behaved equally nor were hurt equally by the macroeconomic shocks they faced during the run-up to the crisis. Furthermore, using panel data estimation, we find that depositors were able to distinguish high-risk from low-risk banks, and that individual bank's exposure to currency and government default risk depended on fundamentals and other bank-specific characteristics. Finally, our results have implications for the existence of market discipline in periods of stress, and for banking regulation, which may have led banks to underestimate some of the risks they incurred. IMF Staff Papers (2007) 54, 621–662. doi:10.1057/palgrave.imfsp.9450022

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