Determinants of Banking System Fragility: A Regional Perspective

Hans Degryse, María Penas and Muhammad Ather Elahi

No 8858, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Banking systems are fragile not only within one country but also within and across regions. We study the role of regional banking system characteristics for regional banking system fragility. We find that regional banking system fragility reduces when banks in the region jointly hold more liquid assets, are better capitalized, and when regional banking systems are more competitive. For Asia and Latin-America, a greater presence of foreign banks also reduces regional banking fragility. We further investigate the possibility of contagion within and across regions. Within region banking contagion is important in all regions but it is substantially lower in the developed regions compared to emerging market regions. For cross-regional contagion, we find that the contagion effects of Europe and the US on Asia and Latin America are significantly higher compared to the effect of Asia and Latin America among themselves. Finally, the impact of cross-regional contagion is attenuated when the host region has a more liquid and more capitalized banking sector.

Keywords: Banking system stability; Cross-regional contagion; Financial integration (search for similar items in EconPapers)
JEL-codes: G15 G20 G29 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-geo and nep-sea
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Determinants of banking system fragility: a regional perspective (2013)
Working Paper: Determinants of Banking System Fragility: A Regional Perspective (2012)
Working Paper: Determinants of Banking System Fragility: A Regional Perspective (2012)
Working Paper: Determinants of Banking System Fragility: A Regional Perspective (2012)
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