Cross-border interbank networks, banking risk and contagion

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

© 2015 Elsevier B.V.Recent events have highlighted the role of cross-border linkages between banking systems in transmitting local developments across national borders. This paper analyzes whether international linkages in interbank markets affect the stability of interconnected banking systems and channel financial distress within a network consisting of banking systems of the main advanced countries for the period 1994-2012. Methodologically, I use a spatial modeling approach to test for spillovers in cross-border interbank markets. The results suggest that foreign exposures in banking play a significant role in channeling banking risk: I find that countries that are linked through foreign borrowing or lending positions to more stable banking systems abroad are significantly affected by positive spillover effects. From a policy point of view, this implies that in stable times, linkages in the banking system can be beneficial, while they have to be taken with caution in times of financial turmoil affecting the whole system.
Original languageEnglish
Pages (from-to)19-32
JournalJournal of Financial Stability
Volume18
DOIs
Publication statusPublished - 1 Jun 2015
Externally publishedYes

Fingerprint

Dive into the research topics of 'Cross-border interbank networks, banking risk and contagion'. Together they form a unique fingerprint.

Cite this