Boom and Bust of Foreign Assets under Integrated Banking System

Maiko Koga (maiko.koga.8@gmail.com) and Koichi Yoshino (koichi.yoshino@gmail.com)
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Maiko Koga: Bank of Japan, Postal: Research and Statistics Department, Bank of Japan, 2-1-1 Nihonbashi Hongokucho Chuo-ku, Tokyo 103-8660, Japan
Koichi Yoshino: Bank of Japan, Postal: Osaka Branch, Bank of Japan, 2-1-45 Nakanoshima, Kita-ku, Osaka 530-8660, Japan

Journal of Economic Integration, 2016, vol. 31, issue 1, 166-182

Abstract: We examine whether highly integrated banking systems across borders escalated the boom and bust of foreign assets owned by banks before and after the global financial crisis. As the financial shock dramatically affected the banking system across the globe, considering only the primary and secondary exposures to the initial shock is inadequate to capture the effect of bank linkages. Using a new specification that accommodates the situation of interconnected banking systems, we explore an overall similarity of lending structures generating the shock amplification. We also investigate whether this effect is shown differently between the boom and the bust periods and between investing areas. To prevent the spread of financial shock, our findings suggest that banks should hold a unique funding structure.

Keywords: International Banks; Financial Crisis; Cross-border Lending (search for similar items in EconPapers)
JEL-codes: F32 F34 G15 G21 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0682

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