The Role of the Banking System in the International Transmission of Shocks

Massimo Sbracia and Andrea Zaghini

No 409, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The paper analyzes the role of the banking system in the international transmission of financial shocks. A channel of transmission is defined as a mechanism through which a financial crisis in one country brings about a financial crisis in another country. Channels involving the banking sector operate through changes in the value of collateral and capital adequacy ratios, through bank runs and bank panics, and through moral hazard. Some stylized facts related to these channels are presented. In particular, the importance of the exposure to a common source of funding and the irrelevance of bank runs as causes of financial distress and contagion are also confirmed by many recent empirical studies. By contrast, according to empirical analyses, the presence of public guarantees as a source of vulnerability to financial shocks is still very controversial. Hence, vulnerability to the common lender channel during the Mexican, Asian and Russian crises is assessed. The indexes proposed in the paper show that the risks stemming from this channel have sharply declined in the years following each crisis for almost all the countries in our sample.

Keywords: financial crisis; bank run; contagion; regulation (search for similar items in EconPapers)
JEL-codes: F42 G21 G28 (search for similar items in EconPapers)
Date: 2001-06
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Citations: View citations in EconPapers (21)

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Journal Article: The Role of the Banking System in the International Transmission of Shocks (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_409_01

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