 Loans from my neighbours: East Asian commercial banks, financial integration, and bank default riskDung Thuy Thi Nguyen, Ivan Diaz-Rainey, Helen Roberts and Minh Le International Review of Financial Analysis, 2021, vol. 74, issue C Abstract: This study investigates the impact of financial integration on recipient country bank default risk and, in particular, if that relationship is moderated by the type of financial integration. Using the system generalized method of moments (GMM), the study finds that financial integration lowers bank default risk in the recipient countries. The impact is primarily driven by the foreign claims extended by Asian lenders and the foreign claims extended via local affiliates. These results show that the close proximity of lenders and borrowers or ‘local’ knowledge via an affiliate presence alleviates information asymmetry, allowing for effective monitoring and disciplining of the loan relationship. The result supports the fostering of financial integration, promoting deeper intra-regional connectedness throughout East Asia. When foreign claims come from outside East Asia, policy makers should encourage presence through local affiliates, as this has an equivalent impact. Keywords: Financial integration; International banking claims; Default risk; Information asymmetry; East Asia (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:74:y:2021:i:c:s105752192100003x DOI: 10.1016/j.irfa.2021.101659 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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