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Banking sectors' international interconnectedness: Implications for consumption risk sharing in Europe

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  • Nitschka, Thomas

Abstract

Cross-border asset and liability holdings allow countries to insulate their consumption streams from idiosyncratic output shocks, i.e. consumption risk sharing. More cross-border asset holdings are associated with more risk sharing. By contrast, a bank’s interconnectedness is regarded as an indicator of its exposure to systemic risk. International interbank asset holdings could hence positively or negatively affect international consumption risk sharing. This paper provides evidence in favour of the latter hypothesis. A country’s ability to achieve consumption risk sharing decreases if banks located in that country are strongly linked to other countries’ banks. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis with number 48684.

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Date of creation: 2011
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Handle: RePEc:zbw:vfsc11:48684

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Web page: http://www.socialpolitik.org/
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Keywords: banking sector; cross-border assets; consumption risk sharing; interconnectedness; systemic risk;

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