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Banking Crises and Financial Integration

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  • Julian Caballero

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Abstract

This paper explores whether the level of financial integration of banks in a country increases the incidence of systemic banking crises. The paper uses a de facto proxy for financial integration based on network statistics of banks participating in the global market of interbank syndicated loans. Specifically, the network statistics degree and betweenness are used to proxy for the de facto integration of the average bank in a country. The paper fits a count data model in the cross-section for the period 1980- 2007 and finds that the level of integration of the average bank is a robust determinant of the incidence of banking crises. An increased level of de facto integration as mea- sured by borrowing by banks is positively associated with the incidence of crises. A higher level of de jure integration (capital account openness) is also associated with a higher incidence of crises. However, the results also indicate that prudential banking regulation (supervision) plays a crucial and much larger role in reducing the incidence of crises. Interestingly, the results also show that the level of integration as measured by betweenness of the average bank has a negative effect on the incidence of crises. That is, the more important the average bank of a country is to the global bank network, the fewer the number of crises the country endures.

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  • Julian Caballero, 2012. "Banking Crises and Financial Integration," Research Department Publications 4816, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4816
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    Cited by:

    1. Endrész, Marianna & Skudelny, Frauke, 2016. "Crisis severity and the international trade network," Working Paper Series 1971, European Central Bank.
    2. Poledna, Sebastian & Molina-Borboa, José Luis & Martínez-Jaramillo, Serafín & van der Leij, Marco & Thurner, Stefan, 2015. "The multi-layer network nature of systemic risk and its implications for the costs of financial crises," Journal of Financial Stability, Elsevier, vol. 20(C), pages 70-81.
    3. Francis Awuku Darko, 2016. "Is there a mission drift in microfinance? Some new empirical evidence from Uganda," Studies in Economics 1603, School of Economics, University of Kent.
    4. Poledna, Sebastian & Bochmann, Olaf & Thurner, Stefan, 2017. "Basel III capital surcharges for G-SIBs are far less effective in managing systemic risk in comparison to network-based, systemic risk-dependent financial transaction taxes," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 230-246.
    5. Camelia Minoiu & Chanhyun Kang & V.S. Subrahmanian & Anamaria Berea, 2015. "Does financial connectedness predict crises?," Quantitative Finance, Taylor & Francis Journals, vol. 15(4), pages 607-624, April.
    6. Hamdaoui, Mekki, 2016. "Are systemic banking crises in developed and developing countries predictable?," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 114-138.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises

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