International Financial Integration and Funding Risks: Bank-Level Evidence from Latin America
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Summary:
Using a sample of over 700 banks in Latin America, we show that international financial liberalization lowers bank capital ratios and increases the shares of short-term funding. Following liberalization, large banks substitute interbank borrowing for equity and long-term funding, whereas small banks increase the proportions of retail funding in their liabilities, which have been particularly vulnerable to flight-to-quality during periods of financial distress in much of Latin America. We also find evidence that riskier bank funding in the aftermath of financial liberalizations is exacerbated by asymmetric information, which rises on geographical distance and the opacity of balance sheets.
Series:
Working Paper No. 2017/224
Subject:
Balance of payments Bank deposits Banking Capital account Deposit insurance Financial crises Financial integration Financial markets Financial services
English
Publication Date:
October 31, 2017
ISBN/ISSN:
9781484324769/1018-5941
Stock No:
WPIEA2017224
Pages:
42
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