Cross-border interbank networks,banking risk and contagion |
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| Affiliation: | 1. Department of Economics, University of Kiel, Germany;2. Banco de España Chair in Computational Economics, Universitat Jaume I, Castellón, Spain;1. Research Department, Central Bank of Brazil, Brasília, Brazil;2. Department of Computing and Mathematics, Faculty of Philosophy, Sciences, and Literatures in Ribeirão Preto, University of São Paulo, Ribeirão Preto, Brazil;3. Catholic University of Brasília, Brasília, Brazil;4. University of Brasília, Brasília, Brazil;1. Deutsche Bundesbank, Wilhelm-Epstein-Strasse, D-60431 Frankfurt, Germany;2. Federal Reserve Bank of Cleveland, United States;3. European Business School, Germany;4. Bank for International Settlements, Centralbahnplatz, CH-4002 Basel, Switzerland;1. Tilburg University, The Netherlands;2. De Nederlandsche Bank, The Netherlands;3. Banco de la República, Colombia |
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| Abstract: | ![]()
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. |
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| Keywords: | Financial contagion Financial integration Banking networks |
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