Global Integration of Banking Markets: At What Cost?

University of Wollongong in Dubai Working Paper No. 37/2005

35 Pages Posted: 26 Dec 2007

See all articles by John L. Simpson

John L. Simpson

Curtin University - Centre for Research in Applied Economics

Date Written: March 2005

Abstract

According to recent literature, country and regional banking systems are becoming more concentrated, particularly in developed economies. Banks are growing larger through takeovers and mergers. The drivers of greater bank size appear to be the needs to achieve economies of scale and scope, improvement of financial services synergies and economies of integration. The process continues in an environment where the World Trade Organisation (WTO), central banking authorities and governments are acknowledging the economic and political desirability of liberalising financial services. This paper takes the position that there may also be significant financial and economic costs attached to global banking financial integration. Regression, correlation, cointegration and causality analysis of unlagged and lagged daily bank price and price index first differences data indicates that developed countries and regional banking systems have achieved a high level of global integration. Integration implies interdependence, which in turn implies the existence of systemic risk. International banks can avoid the threat and the costs of systemic risk by adopting or re-focusing on a culture of portfolio diversification of investments and borrowings. Greater involvement by a global banking regulatory authority may be necessary in ensuing years to monitor undiversified systemic interdependence.

Keywords: Integration, interdependence, price index data, banking systems, bank regulation

JEL Classification: F36

Suggested Citation

Simpson, John L., Global Integration of Banking Markets: At What Cost? (March 2005). University of Wollongong in Dubai Working Paper No. 37/2005, Available at SSRN: https://ssrn.com/abstract=687784 or http://dx.doi.org/10.2139/ssrn.687784

John L. Simpson (Contact Author)

Curtin University - Centre for Research in Applied Economics ( email )

GPO Box U1987
Perth, Western Australia 6845
Australia

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