engleski

Bank liquidity distress transfer toward real economy ahead of financial crisis

Character, volume and form of financial crisis are well known to the economists with acceptable theoretical background and straightforward intentions. Increase of interest rates, securities’ prices overthrow, distress on the interbank deposits and loans market, banks’ failures and crises are some of the typical signs of the present or expected financial crisis, especially inside bank - based financial systems. Interbank market distress additionally amplifies effects of financial crisis. It can be directly connected with systematic risk of the country or transferred between related countries. Interbank market cost transfer to the real economy is analyzed on the example of Croatian banking system that is significantly oriented to interbank funds with almost 30% of total borrowings being interbank market originated. In the first quarter, domestic interbank market faced inefficiency and high funds’ prices mostly due to the increased country risk. Furthermore, country risk valuated and paid on international capital and money market for Croatian banks increased mainly in expectation of domestic market distress. Higher funding costs for clients and credit rationalizing might generate negative effects to the economy faced with lower consumption, prices correction and potential or real illiquidity. New regulatory requirements as well as central bank in the role of the lender of last resort can reduce damage of financial crisis’ transfer towards real economy. In order to highlight and explain recent financial challenges of Croatian banking system the following basic research questions are emphasized: what are possible interbank market distress mechanisms? How might the aforementioned distress determinate real economy financing potential? What prudential management opportunities does theoretical background recommend in compliance with Croatian banking system limitations?

Croatian banking system fragility ; Liquidity and liability management ; International interbank market

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