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A New Index of Currency Mismatch and Systemic Risk, Romain Ranciere, Aaron Tornell, Athanasios Vamvakidis

This paper constructs a new measure of currency mismatch in the banking sector that controls for bank lending to unhedged borrowers. This measure explicitly takes into account the indirect exchange rate risk that banks undertake when they lend to borrowers that will not be able to repay in the event of a sharp depreciation. Such systemic risk taking is not captured by indicators that are based only on banks’ balance sheet data. The new measure is constructed for 10 emerging European economies and for a broader sample that includes 19 additional emerging economies, for the period 1998 - 2008. Comparisons with previous currency mismatch measures that do not adjust for unhedged foreign currency borrowing illustrate the advantages of the new approach. In particular, the new measure flagged the indirect currency mismatch vulnerabilities that were building up in a number of emerging economies before the recent global crisis. Measuring currency mismatch more accurately can help country authorities in their efforts to address vulnerabilities at the right time, avoiding hurting growth prospects
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; 1. Bank Loans in Foreign Currency in Percent of Total Bank Loans, Emerging Europe, 2007; II. A New Measure of Currency Mismatch; III. Measuring Currency Mismatch in Emerging Europe; 2. Currency Mismatch in Emerging Europe, 1998-08; 3. Currency Mismatches in Emerging Europe, with and without Adjustment for Unhedged Lending, 2007; 1. Currency Mismatches in Emergency Europe in Percent of Bank Sector Assets: Adjusting for Unhedged Borrowing, 2004-07; 2. Currency Mismatch Measures in Emerging Europe, 2004-07
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (36 p.)
Specific Material Designation
Form Of Item

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