Global banks and systemic risk: The dark side of country financial connectedness

Ping McLemore, Atanas Mihov and Leandro Sanz

Journal of International Money and Finance, 2022, vol. 129, issue C

Abstract: We study the relation between country financial connectedness and systemic risk for U.S. banking organizations with global exposures. Using supervisory data on U.S. banks’ foreign claims, we find that banks with exposure to countries with globally connected financial markets contribute more to U.S. systemic risk. These adverse effects are amplified by systemically important and less capitalized banking organizations. Consistent with the idea that financial connectedness is a conduit for risk transmission, risk spillovers to the U.S. from foreign financial crises are magnified when the countries in crisis are well financially connected. Our findings are relevant for macro-prudential policy given the concentration of U.S. financial claims in well-connected markets.

Keywords: Systemic risk; Financial connectedness; Financial integration; Global banking; Foreign claims (search for similar items in EconPapers)
JEL-codes: G15 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:129:y:2022:i:c:s0261560622001371

DOI: 10.1016/j.jimonfin.2022.102734

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