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

Dalia Marin, Haizhou Huang and Chenggang Xu

No 2004/105, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; banking sector; quality firm; bank debt; government security; banking development; institutional trap; financial crisis; bank lending; borrowing firm; NBF firm; firms borrowing; opportunities firm; low quality firm; Bank credit; Commercial banks; Government securities; Government securities yields; Europe; Baltics (search for similar items in EconPapers)
Pages: 37
Date: 2004-06-01
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Citations: View citations in EconPapers (9)

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