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Journal of Economic Integration 2016 March;31(1) :166-182.
DOI: https://doi.org/10.11130/jei.2016.31.1.166
Boom and Bust of Foreign Assets under Integrated Banking Systems
Maiko Koga and 
Koichi Yoshino 
Bank of Japan, Tokyo, Japan
Bank of Japan, Osaka, Japan
Corresponding Author: Maiko Koga ,Tel: +81 332791111, Email: maiko.koga.8@gmail.com
Copyright ©2016 Journal of Economic Integration
ABSTRACT
We examine whether highly integrated banking systems across borders escalated the boom and the bust of foreign assets owned by banks before and after the global financial crisis. As the financial shock dramatically affected the banking system across the globe, considering only the primary and secondary exposures to the initial shock is inadequate to capture the effect of bank linkages. Using a new specification that accommodates the situation of interconnected banking systems, we explore an overall similarity of lending structures generating the shock amplification. We also investigate whether this effect is shown differently between the boom and the bust periods and between investing areas. To prevent the spread of financial shock, our findings suggest that banks should hold a unique funding structure.

JEL Classification
G15: International Financial Markets
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
F32: Current Account Adjustment; Short Term Capital Movements
F34 : International Lending and Debt Problems
Keywords: International Banks | Financial Crisis | Cross-border Lending
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