Banking Networks, Systemic Risk, and the Credit Cycle in Emerging Markets

82 Pages Posted: 6 Feb 2020 Last revised: 5 Aug 2022

See all articles by Sanjiv Ranjan Das

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

Subhankar Nayak

Wilfrid Laurier University - Financial Services Research Centre

Date Written: August 5, 2022

Abstract

We study how globalization impacts systemic risk in emerging markets. We extend a large literature on systemic risk in the US, Europe, and other developed countries to emerging markets, which are relatively under-researched. Our findings are based on a large-scale empirical examination of systemic risk among 1048 financial institutions in a sample of 23 emerging markets, broken down into 5 regions, along with 369 U.S. financial institutions. Using an additively decomposable systemic risk score that combines banking system interconnectedness with default probabilities, systemic risk is quantified for each region, across time. The empirical analyses suggest that emerging markets’ systemic risk is heterogeneous across regions, is strongly dependent on the interconnectedness of the banking system within each region, and drives the level of default risk in each region, while the regions are compartmentalized away from each other and insulated from the United States. The systemic risk score may be used as a policy variable in each emerging market region to manage the credit cycle. Our evidence is consistent with the notion that globalization engenders financial stability and does not lead to large systemic risk spillovers across emerging market regions.

Keywords: systemic risk, network risks, default risk, emerging markets, financial institutions

JEL Classification: G00, G01, G10, G15

Suggested Citation

Das, Sanjiv Ranjan and Kalimipalli, Madhu and Nayak, Subhankar, Banking Networks, Systemic Risk, and the Credit Cycle in Emerging Markets (August 5, 2022). Journal of International Financial Markets, Institutions and Money, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3520343 or http://dx.doi.org/10.2139/ssrn.3520343

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business ( email )

Department of Finance
316M Lucas Hall
Santa Clara, CA 95053
United States

HOME PAGE: http://srdas.github.io/

Madhu Kalimipalli (Contact Author)

Lazaridis School of Business and Economics, Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (Phone)

HOME PAGE: http://www.madhukalimipalli.com/

Subhankar Nayak

Wilfrid Laurier University - Financial Services Research Centre ( email )

Waterloo, Ontario N2L 3C5
Canada

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