Irwin, Gregor; Vines, David - C.E.P.R. Discussion Papers - 2000
capital stock is fixed, there may be multiple equilibria. If foreign banks regard lending as low-risk, then it is. But if they … regard lending as high-risk and charge a higher interest rate, then the costs of honouring guarantees rises, making the … lending high-risk and the risk premium self-justifying. A crisis occurs with a switch to this second equilibrium in which the …