Boom and Bust of Foreign Assets under Integrated Banking Systems |
Maiko Koga, 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 |
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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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