Does bank integration contribute to insolvencies and crises?

Abstract

Purpose This paper aims to construct a measure of integration among global banks and examine its impact on bank insolvencies and bank crises. Design/methodology/approach The authors apply principal component analysis to measure a bank’s degree of integration to the global banking market. Moreover, they test whether bank integration affects bank insolvency risk, in which they treat the equity of individual banks as a call option. Findings The authors find that the banking industry has become more globally integrated over the past two decades. At the individual bank level, results indicate that banks with higher integration levels have more assets, more nontraditional banking services and more interbank businesses. Overall, they find that a bank’s integration level is negatively associated with insolvency risk, which suggests that greater integration with global markets diversifies a bank’s risk. At the country level, banking systems with less integrated big banks, or more integrated smaller banks, are more stable and hence less likely to suffer a banking crisis. Originality/value The authors construct a novel measure of integration among global banks and examine its impact on bank insolvencies and bank crises.

The Interrelationship Among Efficiency and Concentration of Banking System and its Stability: Evidence from Poland

“…The influence of financial integration on the stability of the banking system has been addressed by scholars such as Gamze and Tarazi (2020), Sun and Ni (2021). A number of researchers (Kočišova, 2020;Ijaz, Hassan, Tarazi, and Ahmad, 2020;Berger, Klapper, and Turk-Ariss, 2017;Andrieş and Căpraru, 2011;Firano, Zakaria, Filali, and Fatine 2019;Bashir, Khan, Jones, and Hussain, 2021;Kiemo and Samuel, 2021;Soldatos, 2021;Mateev, Tariq, and Sahyouni, 2021;Beck, Demirgüç-Kunt, and Levine, 2003) have analysed the effects of the levels of concentration and competition in the banking sector on its stability.…”