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Cross-Border Banking in Europe and Financial StabilityDirk SchoenmakerDuisenberg School of Finance; VU University Amsterdam Wolf WagnerTilburg University - Department of Economics; Duisenberg School of Finance; TILEC October 1, 2012 International Finance, Vol. 16, 2013, forthcoming Tinbergen Institute Discussion Paper No. TI 11-054/DSF18 Abstract: In this paper we propose country-specific and systemic metrics that allow quantifying whether cross-border banking in a country (or region) takes a desirable form. Applying these metrics to the EU countries, we find that the countries with the largest banking centers, UK and Germany, are well diversified. By contrast, the New Member States (NMS) are highly dependent on a few West-European banks and vulnerable to contagion effects. The Nordic and Baltic regions are much interwoven without much diversification. At the system-wide level, the EU banking system is weakly diversified, with an overexposure to the US and an underexposure to Japan and China. This explains why the recent US originated financial crisis had such a large impact on European banks.
Number of Pages in PDF File: 22 Keywords: International Banking, Portfolio Diversification, Financial Stability JEL Classification: G21, G28 Accepted Paper SeriesDate posted: March 21, 2011 ; Last revised: February 20, 2013Suggested CitationContact Information
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