Economics, Econometrics and Finance
4 years ago

Financial crises hinder global integration, favoring home banks over riskier ones.

SSRN Electronic Journal
International Financial Integration, Crises, and Monetary Policy: Evidence from the Euro Area Interbank Crises
Puriya Abbassi, Falk Bräuning, Falko Fecht, José‐Luis Peydró

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Financial crises reduce international financial integration by limiting cross-border liquidity supply. Flight to home occurs on the extensive margin, regardless of quality. GIPS-headquartered banks suffer in crises, especially riskier ones. Nonstandard monetary policy helps interbank liquidity but doesn't promote strong cross-border financial reintegration.