Determinants of Banking System Fragility: A Regional Perspective

Katholieke Universiteit of Leuven Faculty of Business and Economics Working Paper

47 Pages Posted: 26 Mar 2012 Last revised: 22 Mar 2013

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

M.A. Elahi

CentER, European Banking Center (EBC), Tilburg University

María Fabiana Penas

Universidad Torcuato Di Tella

Multiple version iconThere are 4 versions of this paper

Date Written: March 18, 2013

Abstract

Banking systems are fragile not only within one country but also within and across regions. We study the role of regional banking system characteristics for regional banking system fragility in Asia, Europe, Latin America and the US. We find that regional banking system fragility reduces when banks in the region jointly hold more liquid assets, are better capitalized, and when regional banking systems are more competitive. For Asia and Latin-America, a greater presence of foreign banks and more wholesale funded banks also reduces regional banking fragility. In contrast, regional banking fragility increases in foreign bank presence and wholesale funding in the US. We further investigate the possibility of contagion across regions. We find that the contagion effects of Europe and the US on Asia and Latin America are significantly higher compared to the effect of Asia and Latin America among themselves. Finally, the impact of cross-regional contagion is attenuated when the host region has a more liquid and more capitalized banking sector.

Keywords: Banking system stability, cross-regional contagion, financial integration

JEL Classification: G15, G20, G29

Suggested Citation

Degryse, Hans and Ather Elahi, Muhammad and Penas, María Fabiana, Determinants of Banking System Fragility: A Regional Perspective (March 18, 2013). Katholieke Universiteit of Leuven Faculty of Business and Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=2027897 or http://dx.doi.org/10.2139/ssrn.2027897

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Muhammad Ather Elahi

CentER, European Banking Center (EBC), Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

María Fabiana Penas

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

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