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

  • Thomas Nitschka

Cross-border asset and liability holdings allow countries to insulate their consumption streams from idiosyncratic output shocks, i.e. consumption risk sharing. By contrast, banks' international interconnectedness spread the U.S. subprime mortgage crisis to various economies with adverse macroeconomic consequences. This paper evaluates the partial impact of banks' cross-border links on the ability of their host countries to share consumption risk internationally. It shows that the impact of banks' links to the non-bank sector in the rest-of-the-world on consumption risk sharing is negligible while strong interbank links are associated with relatively little consumption risk sharing of banks' host countries.

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Paper provided by Swiss National Bank in its series Working Papers with number 2012-04.

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Length: 37 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:snb:snbwpa:2012-04
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