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Question 15: Banking crises and their underlying cause and effect relationships can differ according to whether they coincide with other nancial events. For example: a.

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Question 15: Banking crises and their underlying cause and effect relationships can differ according to whether they coincide with other nancial events. For example: a. S" An expected devaluation under a crisis may encourage deposit withdrawals to convert to hard currency before devaluation as in Thailand, Indonesia and Korea in 1997, with causality running from the foreign exchange to the banking crisis. A banking crisis can cause devaluation either through its adverse effects on aggregate demand or by affecting the supply of money (when a costly bank bailout prompts monetization of government bailout costs), with causality running from the banking crisis to the foreign exchange crisis. Sovereign debt crises can also contribute to bank distress when banks hold large amounts of government debt as in Argentina in 2001 or more recently in Greece, with causality running from the sovereign debt crisis to the banking crisis. Both (a) and (c). All of the answers

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