OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

International Capital Mobility and Financial Fragility - Part 1. Drivers of Systemic Banking Crises

The Role of Bank-Balance-Sheet Contagion and Financial Account Structure You or your institution have access to this content

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Author(s):
Rudiger Ahrend1, Antoine Goujard1
Author Affiliations
  • 1: OECD, France

Publication Date
05 June 2012
Bibliographic information
No.:
902
Pages
44
DOI
10.1787/5kg3k8ksgglw-en

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This paper examines whether the composition of a country’s external liabilities and assets has an incidence on its risk of suffering financial turmoil. Particular emphasis is put on the role of international financial integration, using newly-constructed measures of contagion shocks. These new measures capture well the contagion observed e.g. in the wake of the Mexican and Asian crises, and confirm that contagion shocks observed in 2009/10 dwarfed those observed during previous financial crises.

Using a panel of 184 developed and emerging economies from 1970 to 2009, the empirical analysis finds that the structure of the financial account has an important influence on financial stability. A key result is that a bias in external liabilities towards debt strongly increases the risk of a systemic banking crisis. Moreover, certain forms of international financial integration are found to amplify contagion shocks and increase crisis risk, such as integration through international bank lending, and in particular through short-term bank debt.

Keywords:
financial account, balance sheet, financial spillovers, banking system, external debt, financial stability, banking crisis, contagion
JEL Classification:
  • E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy
  • F34: International Economics / International Finance / International Lending and Debt Problems
  • F36: International Economics / International Finance / Financial Aspects of Economic Integration
  • G01: Financial Economics / General / Financial Crises
  • G32: Financial Economics / Corporate Finance and Governance / Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill