Global Banking Network and Regional Financial Contagion

Abstract

This paper investigates and tests the role of regional exposures in financial contagion from advanced to emerging market economies through the global banking network using data on cross-border bilateral bank claims and liability positions. It first examines whether an economy can become more susceptible to capital outflows, regardless of its own bank exposures, if economies in the same region are heavily exposed to crisis countries. Secondly, it tests whether the same region lenders tend to reduce exposures to the emerging market borrowers less than do different region lenders during crises.