Global banking connections can trigger or prevent financial crises, study finds.
When a country's banks are more connected to the global banking system, there is a relationship between financial stability and interconnectedness. For less connected banking systems, increasing connections can reduce the chance of a banking crisis. However, once a certain level of interconnectedness is reached, further increases can actually raise the risk of a crisis. This suggests that it can be helpful for policies to encourage more connections for less connected banking systems, but too much interconnectedness may not always be beneficial.