IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v139y2024ics0264999324001925.html
   My bibliography  Save this article

Financial integration and banking stability: A post-global crisis assessment

Author

Listed:
  • Giraldo, Carlos
  • Giraldo, Iader
  • Gomez-Gonzalez, Jose E.
  • Uribe, Jorge M.

Abstract

The impact of financial openness on banking stability is complex, with debate on its benefits and drawbacks. Theoretical literature suggests a positive relationship between financial openness and growth, development, and stability, but empirical studies reveal conflicting evidence. This paper examines these contradictions by analyzing data from 58 countries between 2010 and 2020. Using various measures for financial openness and stability, and a double debiased machine learning (DDML) model to control for confounders, we find that financial openness generally enhances banking stability, evidenced by lower nonperforming loan ratios, higher capital adequacy ratios, and increased bank liquidity. However, receptiveness to capital inflows heightens financial vulnerability. Policy implications suggest deeper integration with global markets promotes stability without harming bank profitability, advising against prolonged use of macroprudential policies which hinder development. Our results emphasize careful proxy selection for financial openness and stability, advocating sophisticated techniques like DDML to uncover direct effects.

Suggested Citation

  • Giraldo, Carlos & Giraldo, Iader & Gomez-Gonzalez, Jose E. & Uribe, Jorge M., 2024. "Financial integration and banking stability: A post-global crisis assessment," Economic Modelling, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:ecmode:v:139:y:2024:i:c:s0264999324001925
    DOI: 10.1016/j.econmod.2024.106835
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999324001925
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2024.106835?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:hal:spmain:info:hdl:2441/5euk7d0f8t81prfu1k2sspdcok is not listed on IDEAS
    2. Victor Chernozhukov & Denis Chetverikov & Mert Demirer & Esther Duflo & Christian Hansen & Whitney Newey & James Robins, 2018. "Double/debiased machine learning for treatment and structural parameters," Econometrics Journal, Royal Economic Society, vol. 21(1), pages 1-68, February.
    3. Ma, Chang, 2020. "Financial stability, growth and macroprudential policy," Journal of International Economics, Elsevier, vol. 122(C).
    4. Giraldo, Carlos & Giraldo, Iader & Gomez-Gonzalez, Jose E. & Uribe, Jorge M., 2023. "Banks' leverage in foreign exchange derivatives in times of crisis: A tale of two countries," Emerging Markets Review, Elsevier, vol. 55(C).
    5. Sorensen, Bent E. & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2007. "Home bias and international risk sharing: Twin puzzles separated at birth," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 587-605, June.
    6. Agénor, Pierre-Richard & Alper, Koray & Pereira da Silva, Luiz, 2018. "External shocks, financial volatility and reserve requirements in an open economy," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 23-43.
    7. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    8. García-Suaza, Andrés Felipe & Gómez-González, José E. & Pabón, Andrés Murcia & Tenjo-Galarza, Fernando, 2012. "The cyclical behavior of bank capital buffers in an emerging economy: Size does matter," Economic Modelling, Elsevier, vol. 29(5), pages 1612-1617.
    9. Alexandre Belloni & Victor Chernozhukov & Christian Hansen, 2014. "Inference on Treatment Effects after Selection among High-Dimensional Controlsâ€," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 608-650.
    10. Forbes, Kristin J., 2007. "One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms," Journal of International Economics, Elsevier, vol. 71(2), pages 294-323, April.
    11. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    12. Karl Z. Meyer & John M. Luiz & Johannes W. Fedderke, 2024. "Rules of the Game and Credibility of Implementation in the Control of Corruption," Journal of Business Ethics, Springer, vol. 194(1), pages 145-163, September.
    13. Creel, Jérôme & Hubert, Paul & Labondance, Fabien, 2015. "Financial stability and economic performance," Economic Modelling, Elsevier, vol. 48(C), pages 25-40.
    14. Barry Eichengreen, 1998. "Exchange Rate Stability and Financial Stability," Open Economies Review, Springer, vol. 9(1), pages 569-608, January.
    15. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," The World Bank Economic Review, World Bank, vol. 6(3), pages 353-398, September.
    16. Kouretas, Georgios P. & Papadopoulos, Athanasios P. & Tavlas, George S., 2022. "Financial risks, monetary policy in the QE era, and regulation," Journal of Financial Stability, Elsevier, vol. 63(C).
    17. Cerdeiro, Diego A. & Komaromi, Andras, 2021. "Financial openness and capital inflows to emerging markets: In search of robust evidence," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 444-458.
    18. Jácome, Luis I. & Vázquez, Francisco, 2008. "Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean," European Journal of Political Economy, Elsevier, vol. 24(4), pages 788-801, December.
    19. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
    20. C. Bora Durdu & Alex Martin & Ilknur Zer, 2020. "The Role of US Monetary Policy in Banking Crises Across the World," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 66-107, March.
    21. Michael R. Pakko, 1998. "Characterizing Cross-Country Consumption Correlations," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 169-174, February.
    22. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, vol. 89(2), pages 258-270, July.
    23. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-954, July.
    24. Davide Romelli, 2022. "The political economy of reforms in Central Bank design: evidence from a new dataset," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(112), pages 641-688.
    25. Ahir, Hites & Dell'Ariccia, Giovanni & Furceri, Davide & Papageorgiou, Chris & Qi, Hanbo, 2023. "Financial Stress and Economic Activity: Evidence from a New Worldwide Index," CEPR Discussion Papers 18585, C.E.P.R. Discussion Papers.
    26. Robert Stewart & Murshed Chowdhury & Vaalmikki Arjoon, 2021. "Bank stability and economic growth: trade-offs or opportunities?," Empirical Economics, Springer, vol. 61(2), pages 827-853, August.
    27. Peter H. Egger & Sergey Nigai & Nora M. Strecker, 2019. "The Taxing Deed of Globalization," American Economic Review, American Economic Association, vol. 109(2), pages 353-390, February.
    28. Julián A. Caballero, 2016. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?," Economic Journal, Royal Economic Society, vol. 126(591), pages 281-316, March.
    29. Ahrend, Rudiger & Goujard, Antoine, 2014. "Are all forms of financial integration equally risky? Asset price contagion during the global financial crisis," Journal of Financial Stability, Elsevier, vol. 14(C), pages 35-53.
    30. Aizenman, Joshua, 2019. "A modern reincarnation of Mundell-Fleming's trilemma," Economic Modelling, Elsevier, vol. 81(C), pages 444-454.
    31. Mr. Philip R. Lane & Mr. Gian M Milesi-Ferretti, 2017. "International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Working Papers 2017/115, International Monetary Fund.
    32. Igan, Deniz & Kutan, Ali M. & Mirzaei, Ali, 2020. "The real effects of capital inflows in emerging markets," Journal of Banking & Finance, Elsevier, vol. 119(C).
    33. Josef Schroth, 2016. "Capital Flows to Developing Countries: Is There an Allocation Puzzle?," Staff Working Papers 16-53, Bank of Canada.
    34. Rudiger Ahrend & Antoine Goujard, 2014. "Drivers of Systemic Banking Crises: The Role of Financial Account Structure and Financial Integration," International Finance, Wiley Blackwell, vol. 17(2), pages 135-160, June.
    35. Klomp, Jeroen & de Haan, Jakob, 2009. "Central bank independence and financial instability," Journal of Financial Stability, Elsevier, vol. 5(4), pages 321-338, December.
    36. Nassios, Jason & Giesecke, James A. & Dixon, Peter B. & Rimmer, Maureen T., 2020. "What impact do differences in financial structure have on the macro effects of bank capital requirements in the United States and Australia?," Economic Modelling, Elsevier, vol. 87(C), pages 429-446.
    37. Neanidis, Kyriakos C., 2019. "Volatile capital flows and economic growth: The role of banking supervision," Journal of Financial Stability, Elsevier, vol. 40(C), pages 77-93.
    38. Ma, Yong & Lv, Lin, 2023. "Financial development, financial instability, and fiscal policy volatility: International evidence," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giraldo, Iader & Giraldo, Iader & Gomez-Gonzalez, Jose E & Uribe, Jorge M, 2024. "Integration and Financial Stability: A Post-Global Crisis Assessment," Documentos de trabajo 20926, FLAR.
    2. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    3. William R. Cline, 2010. "Financial Globalization, Economic Growth, and the Crisis of 2007-09," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 499, April.
    4. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    5. Joon Hyeok Lee, 2024. "Consecutive decentralization: The effect of central bank independence on capital account liberalization," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 809-831, July.
    6. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, December.
    7. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    8. Calomiris, Charles W. & Larrain, Mauricio & Schmukler, Sergio L., 2021. "Capital inflows, equity issuance activity, and corporate investment," Journal of Financial Intermediation, Elsevier, vol. 46(C).
    9. Kyle Colangelo & Ying-Ying Lee, 2019. "Double debiased machine learning nonparametric inference with continuous treatments," CeMMAP working papers CWP54/19, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    10. Philipp Bach & Victor Chernozhukov & Malte S. Kurz & Martin Spindler & Sven Klaassen, 2021. "DoubleML -- An Object-Oriented Implementation of Double Machine Learning in R," Papers 2103.09603, arXiv.org, revised Jun 2024.
    11. Agboola, Oluwagbenga David & Yu, Han, 2023. "Neighborhood-based cross fitting approach to treatment effects with high-dimensional data," Computational Statistics & Data Analysis, Elsevier, vol. 186(C).
    12. Kyle Colangelo & Ying-Ying Lee, 2020. "Double Debiased Machine Learning Nonparametric Inference with Continuous Treatments," Papers 2004.03036, arXiv.org, revised Sep 2023.
    13. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(3), pages 259-289, December.
    14. Levieuge, Grégory & Lucotte, Yannick & Pradines-Jobet, Florian, 2021. "The cost of banking crises: Does the policy framework matter?," Journal of International Money and Finance, Elsevier, vol. 110(C).
    15. Simon Calmar Andersen & Louise Beuchert & Phillip Heiler & Helena Skyt Nielsen, 2023. "A Guide to Impact Evaluation under Sample Selection and Missing Data: Teacher's Aides and Adolescent Mental Health," Papers 2308.04963, arXiv.org.
    16. Dong, Chaohua & Gao, Jiti & Linton, Oliver, 2023. "High dimensional semiparametric moment restriction models," Journal of Econometrics, Elsevier, vol. 232(2), pages 320-345.
    17. Hansen, Daniel, 2020. "The effectiveness of fiscal institutions: International financial flogging or domestic constraint?," European Journal of Political Economy, Elsevier, vol. 63(C).
    18. Sanchis, A. & Segovia, M.J. & Gil, J.A. & Heras, A. & Vilar, J.L., 2007. "Rough Sets and the role of the monetary policy in financial stability (macroeconomic problem) and the prediction of insolvency in insurance sector (microeconomic problem)," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1554-1573, September.
    19. Michael C Knaus & Michael Lechner & Anthony Strittmatter, 2021. "Machine learning estimation of heterogeneous causal effects: Empirical Monte Carlo evidence," The Econometrics Journal, Royal Economic Society, vol. 24(1), pages 134-161.
    20. Aida Caldera Sánchez & Filippo Gori, 2016. "Can Reforms Promoting Growth Increase Financial Fragility?: An Empirical Assessment," OECD Economics Department Working Papers 1340, OECD Publishing.

    More about this item

    Keywords

    Openness; Integration; Financial stability; Double-debiased machine learning;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:139:y:2024:i:c:s0264999324001925. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.