Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238470 
Year of Publication: 
2020
Series/Report no.: 
ADBI Working Paper Series No. 1113
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
This study investigated the impact of banking integration on recipient country bank default risk and, in particular, whether the type of banking integration moderates that relationship. Using the system generalized method of moments (GMM), the study found that banking integration lowers bank default risk in recipient countries. The foreign claims that Asian lenders extend and the foreign claims that banks extend via local affiliates primarily drive the impact. These results show that the close proximity of lenders and borrowers or "local" knowledge via an affiliate's presence alleviates information asymmetry, allowing for effective monitoring and disciplining of the loan relationship. The result supports the fostering of banking integration, promoting deeper intra-regional connectedness throughout East Asia. Where foreign claims come from outside East Asia, policy makers should encourage their presence through local affiliates, as this has an equivalent impact.
Subjects: 
banking integration
international banking claims
default risk
information asymmetry
East Asia
JEL: 
G21
G28
F36
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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