Banking Crises and Financial Integration

Abstract

This paper explores whether the level of de facto financial integration of banks in a country increases the incidence of systemic banking crises. The paper computes a measure of financial integration based on network statistics of banks participating in the global market of inter-bank syndicated loans. The network statistics used are indegree, outdegree, betweenness, clustering coefficients, authority, and hub centrality. The paper fits a count data model in the cross-section for the period 1980-2007, and finds that the level of financial integration of the average bank in a country is a robust determinant of the incidence of banking crises. While borrowing (weighted indegree) is positively associated with a higher incidence of crises, betweenness is associated with a lower incidence. That is, the more important is the average bank of a country to the global bank network, as captured by betweenness, the smaller the number of crises the country experiences.

Keywords: Banking crises; Financial crises; Capital flows; International Banking; Financial Networks

JEL Classification: E44, F34, F36, G01, G21