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Global Banking Network and Regional Financial Contagion

Author

Listed:
  • Park, Cyn-Young

    (Asian Development Bank)

  • Shin, Kwanho

    (Korea University)

Abstract
This paper investigates and tests the role of regional exposures in financial contagion from advanced to emerging market economies through the global banking network using data on cross-border bilateral bank claims and liability positions. We first examine whether an economy can become more susceptible to capital outflows, regardless of its own bank exposures, if economies in the same region are heavily exposed to crisis countries. Second, we test whether the same region lenders tend to reduce exposures to the emerging market borrowers less than do different region lenders during crises. Using bilateral data from the Bank for International Settlements international banking statistics, we obtain evidence for both hypotheses. First, we find that direct exposures of a country’s own and the overall region’s banking sectors to crisis-affected countries are systematically related to bank capital outflows during the global financial crisis. Also, some of our empirical results indicate that an emerging economy’s financial vulnerability can be influenced by its region’s indirect exposures to crisis countries. Second, a further analysis suggests more favorable behavior of the same region lender toward emerging economies during crisis.

Suggested Citation

  • Park, Cyn-Young & Shin, Kwanho, 2018. "Global Banking Network and Regional Financial Contagion," ADB Economics Working Paper Series 546, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0546
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    References listed on IDEAS

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    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82, National Bureau of Economic Research, Inc.
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    4. Donghyun Park & Arief Ramayand & Kwanho Shin, 2016. "Capital Flows During Quantitative Easing: Experiences of Developing Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(4), pages 886-903, April.
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    6. Park, Cyn-Young & Shin, Kwanho, 2018. "Global Banking Network and Regional Financial Contagion," ADB Economics Working Paper Series 546, Asian Development Bank.
    7. Joon-Ho Hahm & Hyun Song Shin & Kwanho Shin, 2013. "Noncore Bank Liabilities and Financial Vulnerability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45, pages 3-36, August.
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    9. Park, Donghyun & Ramayandi, Arief & Shin, Kwanho, 2014. "Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries," ADB Economics Working Paper Series 409, Asian Development Bank.
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    Cited by:

    1. Park, Cyn-Young & Shin, Kwanho, 2018. "Global Banking Network and Regional Financial Contagion," ADB Economics Working Paper Series 546, Asian Development Bank.
    2. Ana Kristel Lapid & Rogelio Mercado & Peter Rosenkranz, 2023. "Concentration in Asia's cross‐border banking: Determinants and impacts," Pacific Economic Review, Wiley Blackwell, vol. 28(2), pages 267-292, May.
    3. Rosenkranz, Peter & Melchor, Monica, 2022. "Asia’s financial interconnectedness: Evolution, implications, and insights from past crises," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 685-707.
    4. Tao Sun, 2022. "Cross‐country evidence on the relationship between global value chain position and the tail risk of insurers," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(3), pages 329-365, September.
    5. Sorin-George Toma & Loredana Nicoleta Zainea & Dragoș Tohănean, 2019. "Global Banks: The Race for Supremacy in 2018," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 64-69, December.

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    More about this item

    Keywords

    capital outflows; contagion; direct/indirect exposures; global financial crisis; regional;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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