International Financial Integration and Funding Risks: Bank-Level Evidence from Latin America

By Luis Catão, Valeriya Dinger, Daniel Marcel te Kaat

October 31, 2017

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Luis Catão, Valeriya Dinger, and Daniel Marcel te Kaat. International Financial Integration and Funding Risks: Bank-Level Evidence from Latin America, (USA: International Monetary Fund, 2017) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using a sample of over 700 banks in Latin America, we show that international financial liberalization lowers bank capital ratios and increases the shares of short-term funding. Following liberalization, large banks substitute interbank borrowing for equity and long-term funding, whereas small banks increase the proportions of retail funding in their liabilities, which have been particularly vulnerable to flight-to-quality during periods of financial distress in much of Latin America. We also find evidence that riskier bank funding in the aftermath of financial liberalizations is exacerbated by asymmetric information, which rises on geographical distance and the opacity of balance sheets.

Subject: Balance of payments, Bank deposits, Banking, Capital account, Deposit insurance, Financial crises, Financial integration, Financial markets, Financial services

Keywords: Bank Capital Structure, Bank control, Bank deposits, Bank funding, Bank size, Capital account, Central and Eastern Europe, Deposit insurance, Financial integration, Financial liberalization, Funding decision, Funding ratio, Funding risk, Funding structure, Global, International Capital Flows, Liberalization index, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/224
Stock No:

WPIEA2017224
ISBN:

9781484324769
ISSN:

1018-5941

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