{
  "title": "Bank Fragility and International Capital Mobility",
  "publication": "IMF Working Papers, August 1, 1999",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/bank-fragility-and-international-capital-mobility-3250",
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  "summary": "The paper examines the effects of increased financial integration on the economy and, specifically, the welfare of depositors and the business sector. A simple model of a small open economy with a fragile banking sector and imperfect capital mobility is developed.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- The paper examines the effects of increased financial integration on the economy and, specifically, the welfare of depositors and the business sector.\n- A simple model of a small open economy with a fragile banking sector and imperfect capital mobility is developed.\n- Increased international integration of the market for bank deposits makes runs on banks more likely and unambiguously hurts the domestic business sector.\n- Depositors may gain or lose depending on the parameters.\n- Even when depositors gain, the overall effect on the economy depends on the size of foreign assets held relative to the costs of bank crises."
    },
    {
      "heading": "Main findings",
      "content": "- Increased international integration of the market for bank deposits:\n  - makes runs on banks more likely;\n  - unambiguously hurts the domestic business sector.\n- Welfare outcomes for depositors are parameter-dependent:\n  - depositors may gain or lose depending on the parameters of the model.\n- Aggregate effect on the economy hinges on a balance:\n  - depends on the size of foreign assets held relative to the costs of bank crises."
    },
    {
      "heading": "Model and mechanism (as described)",
      "content": "- Framework: simple model of a small open economy.\n- Key features:\n  - fragile banking sector;\n  - imperfect capital mobility;\n  - international integration of the market for bank deposits as a policy/structural change.\n- Mechanism highlighted:\n  - greater integration increases vulnerability to bank runs, which transmits losses to the domestic business sector and affects depositor welfare depending on model parameters and the stock of foreign assets."
    },
    {
      "heading": "Policy-relevant implications (implied by analysis)",
      "content": "- Financial integration can create trade-offs:\n  - it may improve opportunities for depositors in some parameter configurations but increases the likelihood of destabilizing bank runs;\n  - it imposes unambiguous costs on the domestic business sector through higher run risk.\n- Assessment of integration should consider:\n  - the size of foreign assets held relative to potential costs of bank crises when evaluating net effects on the economy.\n\n---\n\n Content in this bundle\n\n- Bank Fragility and International Capital Mobility - WP/99/113\n  - Bank Fragility and International Capital Mobility - WP/99/113 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Bank Fragility and International Capital Mobility - WP/99/113 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/bank-fragility-and-international-capital-mobility-3250"
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    "[Markdown version](/en/publications/wp/issues/2016/12/30/bank-fragility-and-international-capital-mobility-3250/index.md)",
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    "Authors: Enrica Detragiache",
    "Published: August 1, 1999",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451853681.001",
    "The paper examines the effects of increased financial integration on the economy and, specifically, the welfare of depositors and the business sector.",
    "A simple model of a small open economy with a fragile banking sector and imperfect capital mobility is developed.",
    "Increased international integration of the market for bank deposits makes runs on banks more likely and unambiguously hurts the domestic business sector.",
    "Depositors may gain or lose depending on the parameters.",
    "Even when depositors gain, the overall effect on the economy depends on the size of foreign assets held relative to the costs of bank crises.",
    "Increased international integration of the market for bank deposits:",
    "Welfare outcomes for depositors are parameter-dependent:",
    "Aggregate effect on the economy hinges on a balance:",
    "Framework: simple model of a small open economy.",
    "Key features:",
    "Mechanism highlighted:",
    "Financial integration can create trade-offs:",
    "Assessment of integration should consider:",
    "**Bank Fragility and International Capital Mobility - WP/99/113**"
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