Real and Financial Vulnerabilities from Crossborder Banking Linkages

26 Pages Posted: 25 Aug 2014

See all articles by Kyunghun Kim

Kyunghun Kim

University of California, Davis

Srobona Mitra

International Monetary Fund (IMF)

Date Written: July 2014

Abstract

This paper looks at the vulnerabilities stemming from banking sector linkages between countries and their macroeconomic effects. It finds that credit risks (from a banking system’s claims on other countries) and funding risks (from a banking system’s liabilities to another) have declined over the past five years. It also finds that funding vulnerabilities have real effects. During normal times, funding vulnerabilities are associated with significant positive GDP growth surprises. During crisis times, funding vulnerabilities are associated with significant negative GDP growth surprises. The results tell us that policymakers should pay more attention to understanding crossborder funding risks.

Keywords: Banking systems, Cross-border banking, Interconnectedness, Credit risk, External shocks, Cross country analysis, Network Linkages, Banking, Funding Risks, Credit Risks, GDP surprises., banking system, gdp growth, growth rate, gdp growth rate, banking network, banking sector, real gdp, bank for international settlements, banking crisis, bank funding, banking channels, bank credit, banking statistics, banking crises

JEL Classification: G01, G15, G21

Suggested Citation

Kim, Kyunghun and Mitra, Srobona, Real and Financial Vulnerabilities from Crossborder Banking Linkages (July 2014). IMF Working Paper No. 14/136. Available at SSRN: https://ssrn.com/abstract=2486453

Kyunghun Kim (Contact Author)

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Srobona Mitra

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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