Determinants of Banking System Fragility

A Regional Perspective

H.A. Degryse, M.A. Elahi, M.F. Penas

Research output: Working paperDiscussion paperOther research output

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Abstract

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. 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 also reduces regional banking fragility. We further investigate the possibility of contagion within and across regions. Within region banking contagion is important in all regions but it is substantially lower in the developed regions compared to emerging market regions. For cross-regional contagion, 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.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages50
Volume2012-009
Publication statusPublished - 2012

Publication series

NameEBC Discussion Paper
Volume2012-009

Fingerprint

Fragility
Banking system
Contagion
Asia
Latin America
Banking
Emerging markets
Contagion effect
Assets
Foreign banks
Banking sector

Keywords

  • Banking system stability
  • cross-regional contagion
  • financial integration

Cite this

Degryse, H. A., Elahi, M. A., & Penas, M. F. (2012). Determinants of Banking System Fragility: A Regional Perspective. (EBC Discussion Paper; Vol. 2012-009). Tilburg: EBC.
Degryse, H.A. ; Elahi, M.A. ; Penas, M.F. / Determinants of Banking System Fragility : A Regional Perspective. Tilburg : EBC, 2012. (EBC Discussion Paper).
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Degryse, HA, Elahi, MA & Penas, MF 2012 'Determinants of Banking System Fragility: A Regional Perspective' EBC Discussion Paper, vol. 2012-009, EBC, Tilburg.

Determinants of Banking System Fragility : A Regional Perspective. / Degryse, H.A.; Elahi, M.A.; Penas, M.F.

Tilburg : EBC, 2012. (EBC Discussion Paper; Vol. 2012-009).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Determinants of Banking System Fragility

T2 - A Regional Perspective

AU - Degryse, H.A.

AU - Elahi, M.A.

AU - Penas, M.F.

N1 - This is also CentER Discussion Paper 2012-015 Pagination: 50

PY - 2012

Y1 - 2012

N2 - 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. 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 also reduces regional banking fragility. We further investigate the possibility of contagion within and across regions. Within region banking contagion is important in all regions but it is substantially lower in the developed regions compared to emerging market regions. For cross-regional contagion, 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.

AB - 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. 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 also reduces regional banking fragility. We further investigate the possibility of contagion within and across regions. Within region banking contagion is important in all regions but it is substantially lower in the developed regions compared to emerging market regions. For cross-regional contagion, 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.

KW - Banking system stability

KW - cross-regional contagion

KW - financial integration

M3 - Discussion paper

VL - 2012-009

T3 - EBC Discussion Paper

BT - Determinants of Banking System Fragility

PB - EBC

CY - Tilburg

ER -

Degryse HA, Elahi MA, Penas MF. Determinants of Banking System Fragility: A Regional Perspective. Tilburg: EBC. 2012. (EBC Discussion Paper).