^*Adolfo Barajas is a senior economist with the IMF Institute, Emiliano Basco is the division head of the Economic Research Department of the Central Bank of Argentina, V. Hugo Juan-Ramon is the deputy division chief of the Western Hemisphere Division of the IMF Institute, and Carlos Quarracino is the director of information and short-term analysis of the National Macroeconomic Policy Directorate of the Ministry of the Economy of Argentina. We thank an anonymous referee as well as Eduardo Levy-Yeyati, Miguel Messmacher, Hemant Shah, Rodolfo Luzio, Ernesto Ramírez, and seminar participants at the IMF Institute and the Universidade de São Paulo for their helpful comments, and Takayuki Tsuruga and Wolfgang Harten for outstanding research assistance.

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.