Contents -- I. Introduction -- II. Background -- III. Possible Propagation Channels of Regional Shocks -- IV. Stylized Facts on Cross Border Exposures and Financial Linkages -- V. Implications for Exposure to Regional Contagion Risks -- VI. Conclusions, Caveats, and Policy Implications -- References -- Tables -- 1. Evolution of Credit to the Private Sector in Ratio to GDP -- Figures -- 1. Asset Share of Foreign-Owned Banks, 2000-2006 -- 2. The CESE Region: Catching Up from Low Levels of Intermediation -- 3. Major Banking Groups: Assets in Emerging Europe, end-2007 -- 4. The CESE Region: Funding of Credit Expansion, 2003-2007 -- 5. The CESE Region: Funding of Credit Expansion, 2002-June 2008 -- 6. Foreign Claims of All BIS Reporting Banks on Emerging Europe -- 7. Relative Magnitude of Exposure for CESE and Western Europe, December 2007 -- 8. CESE Banks' Exposure to Foreign Banks--International Claims on Banks -- 9. CESE: Concentration of Funding Dependence to BIS Reporting Banks in Western Europe, December 2007 -- 10. The Impact of a Shock from Home to Host Country-An Illustration -- 11. CESE Countries: Indices of Contagion Exposure - Foreign Claim Concept -- 12. CESE Countries: Indices of Contagion Exposure - International Claims Concept -- 13. CESE Countries: Indices of Contagion Exposure - International Claims on CESE Banks Only -- Appendixes -- I: Major Banking Groups Active in the CESE Region -- II: A Growing Role for Lending to Nonbank Institutions -- III. Computation of Exposure to Regional Contagion -- Appendix Tables -- 2. Host Country Exposure to Home Country Banks: Measure of Relative Dependence, end-2007, Foreign Claims Concept -- 3. Home Country Exposure to Host Countries: Measure of Relative Exposure, end-2007, Foreign Claims Concept.

4. Host Country Exposure to Home Country Banks: Measure of Absolute Dependence, end 2007, Foreign Claims Concept -- 5. Home Country Exposure to Host Countries: Measure of Absolute Exposure, end 2007, Foreign Claims Concept -- 6a. CESE Countries: Index of Exposure to Regional Contagion without Rebalancing, end-2007, Foreign Claims Concept -- 6b. CESE Countries: Index of Exposure to Regional Contagion with Rebalancing, end-2007, Foreign Claims Concept -- 7a. CESE Countries: Index of Exposure to Regional Contagion without Rebalancing, end-2007, International Claims Concept -- 7b. CESE Countries: Index of Exposure to Regional Contagion with Rebalancing, end-2007, International Claims Concept -- Appendix Figure -- Figure 14. Income Exposure of Major Banking Groups to the CESE Region, 2007.