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Determinants of Banking System Fragility : A Regional Perspective

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  • Degryse, H.A.

    (Tilburg University, School of Economics and Management)

  • Elahi, M.A.

    (Tilburg University, School of Economics and Management)

  • Penas, M.F.

    (Tilburg University, School of Economics and Management)

Abstract

Banking systems are fragile not only within one country but also within and across regions. We study the role of regional banking system characteristics for regional banking system fragility. We find that regional banking system fragility reduces when banks in the region jointly hold more liquid assets, are better capitalized, and when regional banking systems are more competitive. For Asia and Latin-America, a greater presence of foreign banks also reduces regional banking fragility. We further investigate the possibility of contagion within and across regions. Within region banking contagion is important in all regions but it is substantially lower in the developed regions compared to emerging market regions. For cross-regional contagion, we find that the contagion effects of Europe and the US on Asia and Latin America are significantly higher compared to the effect of Asia and Latin America among themselves. Finally, the impact of cross-regional contagion is attenuated when the host region has a more liquid and more capitalized banking sector.
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  • Degryse, H.A. & Elahi, M.A. & Penas, M.F., 2012. "Determinants of Banking System Fragility : A Regional Perspective," Other publications TiSEM 15e03b14-3a9b-4ce8-9c1f-4, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:15e03b14-3a9b-4ce8-9c1f-4d7550ec47b5
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    4. Demian Macedo & Victor Troster, 2021. "Liquidity shocks and interbank market failures: the role of deposit flights, non-performing loans, and competition," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(4), pages 705-746, October.
    5. Clemens Bonner & Sylvester C. W. Eijffinger, 2016. "The Impact of Liquidity Regulation on Bank Intermediation," Review of Finance, European Finance Association, vol. 20(5), pages 1945-1979.
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    7. Mogaji, Peter Kehinde, 2018. "Probit Modelling and Evaluation of Banking Sector Fragility within the West African Monetary Zone," MPRA Paper 98695, University Library of Munich, Germany.
    8. Lee, Eun-Joo, 2017. "Intra- and inter-regional portfolio diversification strategies under regional market integration: Evidence from U.S. global banks," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 1-22.
    9. O. de Bandt & J.-C. Héam & C. Labonne & S. Tavolaro, 2013. "Measuring Systemic Risk in a Post-Crisis World," Débats économiques et financiers 6, Banque de France.
    10. Ralph De Haas & Iman Van Lelyveld, 2014. "Multinational Banks and the Global Financial Crisis: Weathering the Perfect Storm?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 333-364, February.
    11. Huong, Pham Thu, 2022. "Foreign bank penetration in Vietnam following Vietnam’s accession to the WTO: matching expectations with reality," OSF Preprints fkhbt, Center for Open Science.
    12. Bank for International Settlements, 2014. "EME banking systems and regional financial integration," CGFS Papers, Bank for International Settlements, number 51, december.
    13. CLICHICI, Dorina, 2013. "The Determinants Of Banking System Vulnerability In The Republic Of Moldova," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 17(4), pages 8-21.
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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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