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Contagion and Banking Crisis - International Evidence for 2007-2009

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Dungey, M and Gajurel, D (2014) Contagion and Banking Crisis - International Evidence for 2007-2009. Discussion Paper. University of Tasmania, University of Tasmania. (Unpublished)

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Abstract

Policy makers aim to avoid banking crises, and although they can to some extent control domestic conditions, internationally transmitted crises are difficult to tackle.
This paper identifies international contagion in banking during the 2007- 2009 crisis for 50 economies. We identify three channels of contagion - systematic, idiosyncratic
and volatility - and find evidence for these in 41 countries. Banking crises are overwhelmingly associated with the presence of both systematic and idiosyncratic
contagion. The results reveal that crisis shocks transmitted from a foreign jurisdiction via idiosyncratic contagion increase the likelihood of a systemic crisis in
the domestic banking system by almost 27 percent, whereas increased exposure via systematic contagion does not necessarily destabilize the domestic banking system.
Thus while policy makers and regulatory authorities are rightly concerned with the systematic transmission of banking crises, reducing the potential for idiosyncratic
contagion can importantly reduce the consequences for the domestic economy.

Item Type: Report (Discussion Paper)
Keywords: Global financial crisis, financial contagion, banking institutions, assetvpricing, GARCH
Publisher: University of Tasmania
Additional Information:

Copyright 2014 the Authors and the University of Tasmania

Date Deposited: 24 Sep 2014 23:13
Last Modified: 18 Nov 2014 05:05
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