External Wealth of Nations and Systemic Risk

Alin Marius Andries, Alexandra-Maria Chiper, Steven Ongena and Nicu Sprincean
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Alin Marius Andries: Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting
Alexandra-Maria Chiper: Alexandru Ioan Cuza University of Iasi
Authors registered in the RePEc Author Service: Alin Marius Andrieș

No 22-74, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: External imbalances played a pivotal role in the run-up to the global financial crisis, being an important underlying cause of the ensuing turmoil. While current account (flow) imbalances have narrowed in the aftermath of the crisis, net international investment position (stock) imbalances still persist. In this paper, we explore the implications of countries’ net foreign positions on systemic risk. Using a sample composed of 450 banks located in 46 advanced, developing and emerging countries over the period 2000-2020, we document that banks can reduce their systemic risk exposure when the countries where they are incorporated maintain creditor positions vis-à-vis the rest of the world. However, only the equity components of the net international investment positions are responsible for this outcome, whereas debt flows do not contribute significantly. In addition, we find that the heterogeneity across countries is substantial and that only banks located in advanced markets that maintain their creditor positions have the potential to improve their resilience to system-wide shocks. Our findings are relevant for policy makers who seek to improve banks’ resilience to adverse shocks and to maintain financial stability.

Keywords: External Wealth of Nations; External Imbalances; Net International Investment Position; Systemic Risk; Financial Stability (search for similar items in EconPapers)
JEL-codes: F32 G21 G32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2022-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-ifn, nep-opm and nep-rmg
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Related works:
Journal Article: External wealth of nations and systemic risk (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2274

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