Integration and Financial Stability: A Post-Global Crisis Assessment

Iader Giraldo (), Iader Giraldo (), Jose Gomez-Gonzalez and Jorge Uribe
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Iader Giraldo: FLAR
Iader Giraldo: FLAR
Authors registered in the RePEc Author Service: Iader Giraldo

No 20926, Documentos de trabajo from FLAR

Abstract: In this study, we revisit the debate regarding the effects of financial openness on financial stability. In contrast to previous studies, our approach involves measuring the direct influences of openness on stability through a varied set of proxies used to capture the diverse dimensions of both of these concepts within a unified estimation framework. Employing state-of-the-art machine learning techniques, our estimates enable us to isolate the focal effects while controlling for a comprehensive set of macroeconomic, political, and institutional variables. Covering the period spanning 2010 to 2020 across 45 countries, our results indicate that, in the majority of cases, increased financial openness is beneficial for financial stability. Greater levels of integration tends to reduce the ratio of nonperforming loans to total loans, concurrently improving capital adequacy ratios and the ratio of provisions to nonperforming loans. Additionally, heightened openness leads to an increase in the levels of bank liquidity. Importantly, these enhancements to financial stability occur without any adverse effects on bank profitability. This suggests that policies aimed at fostering greater integration with global financial markets and promoting increased bank competition can exert positive impacts on financial stability without compromising bank profitability.

Keywords: Openness; integration; Financial stability; Double-Debiased Machine Learning (search for similar items in EconPapers)
JEL-codes: F21 F32 G21 G28 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2024-01-17
New Economics Papers: this item is included in nep-ban, nep-big, nep-cmp, nep-fdg and nep-ifn
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