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on Central and Western Asia |
| By: | Adnan Mazarei (Peterson Institute for International Economics) |
| Abstract: | Suffering under Western sanctions and security challenges, Iran faces problems as well from its fragile banking system, which has been languishing for decades. Liquidity and solvency weaknesses pose a growing risk to the country’s financial stability. The sanctions reimposed by the United States in 2018 have heightened these vulnerabilities, but the problems also result from the heavy-handed role of the state, corruption, and the Central Bank of Iran’s failure to regulate and supervise the system. Iran’s ability to avoid a run on its banks is aided by their reliance on liquidity assistance, deposit insurance, and regulatory forbearance from the central bank. Depositors are forced to be patient because they have limited options to invest elsewhere. Iran has thus avoided a full-blown banking crisis. But the situation is not sustainable. Banks remain susceptible to external shocks, which could come from a complete halt to oil exports or war. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb19-8&r=all |
| By: | Mirko Draca (Department of Economics, University of Warwick, Coventry, United Kingdom); Jason Garred (Department of Economics, University of Ottawa, Ottawa, ON); Leanne Stickland (Department of Economics, University of Warwick, Coventry, United Kingdom); Nele Warrinnier (Faculty of Economics and Business, KU Leuven, Leuven, Belgium) |
| Abstract: | How successful are sanctions at targeting the economic interests of political elites in affected countries? We study the efficacy of targeting in the case of Iran, using information on the stock exchange-listed assets of two specific political entities with substantial influence over the direction of Iran's nuclear program. Our identification strategy focuses on the process of negotiations for sanctions removal, examining which interests benefit most from news about diplomatic progress. We find that the stock returns of firms owned by targeted political elites respond especially sharply to such news, though other listed firms unconnected to these elites also benefit from progress towards sanctions relief. These results indicate the ‘bluntness’ of sanctions on Iran, but also provide evidence of their effectiveness in generating economic incentives for elite policymakers to negotiate a deal for sanctions relief. |
| JEL: | F51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:1903e&r=all |