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Financial integration, contagion and policy implications

Author

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  • Hasman, Augusto
  • Samartín, Margarita

Abstract

This theoretical paper presents a novel perspective on the trade-off between capital requirements and the role of a lender of last resort. Banks can decide to establish interconnections with other financial institutions in the presence of shocks on the asset and liability side of their balance sheet. We find that there are four determinants driving the optimal policy, such as the estimated probability of shocks, monitoring costs, the social cost of insurance, and the level of impatience. The role of financial integration is especially likely to be ambiguous from a social perspective.

Suggested Citation

  • Hasman, Augusto & Samartín, Margarita, 2025. "Financial integration, contagion and policy implications," International Review of Economics & Finance, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:reveco:v:102:y:2025:i:c:s105905602500317x
    DOI: 10.1016/j.iref.2025.104154
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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