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Integration and Financial Stability: A Post-Global Crisis Assessment

Author

Listed:
  • Giraldo, Iader

    (FLAR)

  • Giraldo, Iader

    (FLAR)

  • Gomez-Gonzalez, Jose E

    (Department of Finance, Information Systems, and Economics, City University of New York – Lehman College, Bronx)

  • Uribe, Jorge M

    (Faculty of Economics and Business, Universitat Oberta de Catalunya)

Abstract

In this study, we revisit the debate regarding the effects of financial openness on financial stability. In contrast to previous studies, our approach involves measuring the direct influences of openness on stability through a varied set of proxies used to capture the diverse dimensions of both of these concepts within a unified estimation framework. Employing state-of-the-art machine learning techniques, our estimates enable us to isolate the focal effects while controlling for a comprehensive set of macroeconomic, political, and institutional variables. Covering the period spanning 2010 to 2020 across 45 countries, our results indicate that, in the majority of cases, increased financial openness is beneficial for financial stability. Greater levels of integration tends to reduce the ratio of nonperforming loans to total loans, concurrently improving capital adequacy ratios and the ratio of provisions to nonperforming loans. Additionally, heightened openness leads to an increase in the levels of bank liquidity. Importantly, these enhancements to financial stability occur without any adverse effects on bank profitability. This suggests that policies aimed at fostering greater integration with global financial markets and promoting increased bank competition can exert positive impacts on financial stability without compromising bank profitability.

Suggested Citation

  • 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.
    • Handle: RePEc:col:000566:020926
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    References listed on IDEAS

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    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

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