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The Role of the Banking System in the International Transmission of Shocks

Author

Listed:
  • Massimo Sbracia

    (Banca d'Italia)

  • Andrea Zaghini

    (Banca d'Italia)

Abstract

The paper analyzes the role of the banking system in the international transmission of financial shocks. A channel of transmission is defined as a mechanism through which a financial crisis in one country brings about a financial crisis in another country. Channels involving the banking sector operate through changes in the value of collateral and capital adequacy ratios, through bank runs and bank panics, and through moral hazard. Some stylized facts related to these channels are presented. In particular, the importance of the exposure to a common source of funding and the irrelevance of bank runs as causes of financial distress and contagion are also confirmed by many recent empirical studies. By contrast, according to empirical analyses, the presence of public guarantees as a source of vulnerability to financial shocks is still very controversial. Hence, vulnerability to the common lender channel during the Mexican, Asian and Russian crises is assessed. The indexes proposed in the paper show that the risks stemming from this channel have sharply declined in the years following each crisis for almost all the countries in our sample.

Suggested Citation

  • Massimo Sbracia & Andrea Zaghini, 2001. "The Role of the Banking System in the International Transmission of Shocks," Temi di discussione (Economic working papers) 409, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_409_01
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    References listed on IDEAS

    as
    1. Massimo Sbracia & Andrea Zaghini, 2001. "Crises and contagion: the role of the banking system," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 241-260, Bank for International Settlements.
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    8. Barry Eichengreen and Carlos Arteta., 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research (CIDER) Working Papers C00-115, University of California at Berkeley.
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    10. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
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    More about this item

    Keywords

    financial crisis; bank run; contagion; regulation;
    All these keywords.

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • 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

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