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Bank Fragility and International Capital Mobility

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  • Enrica Detragiache

Abstract

The paper presents a model of a small open economy with a fragile banking sector and imperfect international capital mobility. In this model, increased international integration of the market for bank deposits makes bank runs more likely, resulting in a welfare loss for the business sector. Bank depositors may gain or lose depending on the parameters. When depositors gain, whether the gains exceed the losses to the business sector depends on the size of the holdings of foreign assets relative to the deadweight costs of bank runs. Thus, limited international financial integration may not be desirable.

Suggested Citation

  • Enrica Detragiache, 2001. "Bank Fragility and International Capital Mobility," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 673-687, November.
  • Handle: RePEc:bla:reviec:v:9:y:2001:i:4:p:673-687
    DOI: 10.1111/1467-9396.00306
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    Cited by:

    1. Sebastián Claro, 2005. "Understanding International Differences in Trade and Capital Market Integration," Documentos de Trabajo 285, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. De Vries, C.G., 2005. "The simple economics of bank fragility," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 803-825, April.
    3. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Staff Working Papers 03-1, Bank of Canada.

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