Banking sector resilience to financial spillovers

ABSTRACT

By using a large sample of bank-level data, we analyse whether the spillover effects of US financial shocks differ with the fundamental characteristics of the banking sectors in the affected countries. We find that a banking sector characterized by a higher degree of competition and larger margin of safety is less affected by financial spillovers. The results are robust to the inclusion of bank-level control variables that capture individual banks’ lending capacity.

KEYWORDS:

• Financial spillovers
• banking sector resilience
• Boone indicator
• Z-score
• system GMM estimator

JEL CLASSIFICATION:

• G15
• G21
• O16

Acknowledgements

The authors are grateful to the editor and anonymous referee for their helpful comments on an earlier version of this article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ ‘Taper tantrum’ refers to the sharp negative impact of the US central bank’s indication of the possible tapering of quantitative easing on financial markets in emerging market economies.

² The KCFSI consists of 11 financial variables, such as TED spread, treasury and corporate bond spreads and the volatility of stock prices. The annual data are constructed by averaging monthly data for each year.

³ As for the data on commercial banks, we consider the financial statements at the highest level of consolidation within a country to avoid any duplication of the data. Note that commercial banks do not include other types of banks, such as saving banks and cooperatives. In addition, banks with many missing values and outliers in the data are excluded from the sample. Future work might thus aim to expand the coverage of the sample to check the robustness of the presented findings.

Additional information

Funding

This work was supported by JSPS KAKENHI [15K03429].