Real and Financial Vulnerabilities from Crossborder Banking Linkages

Author/Editor: Kyunghun Kim ; Srobona Mitra
Publication Date: July 25, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper looks at the vulnerabilities stemming from banking sector linkages between countries and their macroeconomic effects. It finds that credit risks (from a banking system’s claims on other countries) and funding risks (from a banking system’s liabilities to another) have declined over the past five years. It also finds that funding vulnerabilities have real effects. During normal times, funding vulnerabilities are associated with significant positive GDP growth surprises. During crisis times, funding vulnerabilities are associated with significant negative GDP growth surprises. The results tell us that policymakers should pay more attention to understanding crossborder funding risks.
Series: Working Paper No. 14/136
Subject(s): Banking systems | Cross-border banking | Interconnectedness | Credit risk | External shocks | Cross country analysis

Publication Date: July 25, 2014
ISBN/ISSN: 9781498369060/1018-5941 Format: Paper
Stock No: WPIEA2014136 Pages: 25
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