The Systemic Risk of Cross-Border Banking: Evidence from the Sudden Stop and Interbank Stress Contagion in East Asia

Le, Chau H.A. and Dickinson, David G. (2016) The Systemic Risk of Cross-Border Banking: Evidence from the Sudden Stop and Interbank Stress Contagion in East Asia. Emerging Markets Finance and Trade, 52 (1). pp. 237-254. ISSN 1540-496X

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Abstract

This article investigates the systemic risk of cross-border banking in East Asia. Using the recursive bivariate probit model, we jointly test the probability of the sudden stop in international lending and its simultaneous effect on the host countries’ interbank markets. The empirical results suggest that the risk of a sudden stop is associated with global liquidity shock; host country productivity shock; and the common lender contagion effect. This facilitates the transmission of interbank stress from advanced economies to emerging markets. However, the tension is mitigated by the “flight-home effect” caused by domestic investors’ repatriation. The sudden stop is more likely to occur in countries with lower financial openness but higher financial risk. Lending flows to the banking sectors are more sensitive to shocks than the flows to the non-bank private sectors.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > School of Economics
Related URLs:
Depositing User: LivePure Connector
Date Deposited: 02 Nov 2018 17:30
Last Modified: 02 Nov 2018 20:30
URI: https://ueaeprints.uea.ac.uk/id/eprint/68756
DOI: 10.1080/1540496X.2015.1021643

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