Publication: Has the Global Banking System Become More Fragile over Time?
Loading...
Published
2011-10-01
ISSN
Date
2012-03-19
Author(s)
Anginer, Deniz
Editor(s)
Abstract
This paper examines time-series and cross-country variations in default risk co-dependence in the global banking system. The authors construct a default risk measure for all publicly traded banks using the Merton contingent claim model, and examine the evolution of the correlation structure of default risk for more than 1,800 banks in more than 60 countries. They find that there has been a significant increase in default risk co-dependence over the three-year period leading to the financial crisis. They also find that countries that are more integrated, and that have liberalized financial systems and weak banking supervision, have higher co-dependence in their banking sector. The results support an increase in scope for international supervisory co-operation, as well as capital charges for "too-connected-to-fail" institutions that can impose significant externalities.
Link to Data Set
Citation
“Anginer, Deniz; Demirgüç-Kunt, Asli. 2011. Has the Global Banking System Become More Fragile over Time?. Policy Research working paper ; no. WPS 5849. © World Bank. http://hdl.handle.net/10986/3644 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Intergenerational Income Mobility around the World(Washington, DC: World Bank, 2025-07-09)This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Investing in Human Capital During Wartime: Experimental Evidence from Ukraine(Washington, DC: World Bank, 2025-09-02)This paper provides insights into human capital investments during wartime by presenting evidence from three experiments of an online tutoring program for Ukrainian students amid Russia’s invasion of Ukraine. Conducted between early 2023 and mid-2024, the experiments reached nearly 10,000 students across all regions of Ukraine. The program offered three hours per week of small-group tutoring in math and Ukrainian language over six weeks and used academic and psychosocial tools to address student challenges at different intensities of disruption. Results show that the program led to substantial improvements in learning—up to 0.49 standard deviations in math and 0.40 standard deviations in Ukrainian language—and consistent reductions in stress—up to 0.12 standard deviations. High take-up and engagement rates were observed, and four mechanisms were identified as drivers of impact: structured peer interactions, improved attitudes toward learning, enhanced socio-emotional skills, and increased student investments. A complementary experiment using information nudges to increase parental engagement highlights challenges in promoting parental investments in a conflict setting. The program was cost-effective across all experiments, with benefit-to-cost ratios ranging from 31 to 56, and scalable given its reliance on existing infrastructure and teaching capacity.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication Children in Monetary Poor Households: Global, Regional, and Select National Trends in the Progress against Child Poverty(Washington, DC: World Bank, 2025-09-05)This paper presents the first estimates of extreme child poverty and child poverty using the World Bank’s recently revised international poverty lines. Using the international poverty line of $3.00 per day and the higher $8.30 per day poverty line (both expressed in 2021 purchasing power parity), the paper provides new results of the global and regional trends over 2014–24. The estimates show that 19.2 percent of children, approximately 412 million children, were living on less than $3.00 (2021 PPP) per day as of 2024, a reduction from 507 million children in 2014. This long-term decrease was slower than that for the general population. At the higher line of $8.30, the child poverty rate in 2024 was 65.9 percent, representing around 1.4 billion children, a drop from the 73.1 percent registered in 2014. At the regional level, the East Asia and Pacific and South Asia regions witnessed significant reductions in child poverty and extreme child poverty between 2014 and 2024, and the Europe and Central Asia and Latin America and the Caribbean regions showed reductions mostly in child poverty. In the same period, there was an increase in extreme child poverty in the Middle East and North Africa region. Sub-Saharan Africa experienced a “lost decade” of child poverty reduction between 2014 and 2024, increasing its concentration of global poverty. In 2024, Sub-Saharan Africa hosted more than three-quarters of children in extreme poor households (more than 311 million children), although its share of the global child population was around 23 percent. Country-level results show evidence of regional heterogeneity in progress against extreme child poverty.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication How Does Bank Competition Affect Systemic Stability?(2012-02-01)Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, they examine the correlation in the risk taking behavior of banks, hence systemic risk. They find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, with generous deposit insurance and greater government ownership of banks, and public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with low levels of foreign ownership, weak investor protections, generous safety nets, and where the authorities provide limited guidance for bank asset diversification.Publication The U.S. Subprime Mortgage Crisis(World Bank, Washington, DC, 2008)The subprime mortgage crisis ranks among the most serious economic events affecting the United States since the great depression of the 1930s. This study analyzes key issues raised by the crisis at three levels: (i) issues directly and specifically relating to subprime mortgage lending; (ii) issues relating to the securitization of subprime mortgages; and (iii) issues affecting financial markets and institutions. These issues are fundamental to risk bearing, sharing, and transfer in financial markets and institutions around the world. Many of the issues raised by the U.S. subprime crisis also apply to high-risk loan markets in developing countries. The framework applied in the paper analyzes subprime mortgage lending as a major financial market innovation. Although conditions were conducive for subprime lending to arise as a financial innovation, financial innovations are necessarily risky undertakings, all the more so when they create new classes of risky loans and securities. The lessons learned from the crisis can thus be usefully applied to issues of the growth and development of emerging economies, as well as pointing the way to the design of new and efficient policies for subprime lending in the developed economies.Publication Regulatory Reform : Integrating Paradigms(2009-02-01)The Subprime crisis largely resulted from failures to internalize systemic risk evenly across financial intermediaries and recognize the implications of Knightian uncertainty and mood swings. A successful reform of prudential regulation will need to integrate more harmoniously the three paradigms of moral hazard, externalities, and uncertainty. This is a tall order because each paradigm leads to different and often inconsistent regulatory implications. Moreover, efforts to address the central problem under one paradigm can make the problems under the others worse. To avoid regulatory arbitrage and ensure that externalities are uniformly internalized, all prudentially regulated intermediaries should be subjected to the same capital adequacy requirements, and unregulated intermediaries should be financed only by regulated intermediaries. Reflecting the importance of uncertainty, the new regulatory architecture will also need to rely less on markets and more on "holistic" supervision, and incorporate countercyclical norms that can be adjusted in light of changing circumstances.Publication When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis(World Bank, Washington, DC, 2010-02)This paper provides systematic evidence of the role of banks' reliance on wholesale funding in the international transmission of the ongoing financial crisis. It conducts an event study to estimate the impact of the liquidity crunch of September 15, 2008, on the stock price returns of 662 individual banks across 44 countries, and tests whether differences in the abnormal returns observed around those events relate to these banks' ex-ante reliance on wholesale funding. Globally and within countries, banks that relied more heavily in non-deposit sources of funds experienced a significantly larger decline in stock returns even after controlling for other mechanisms. Within a country, the abnormal returns of banks with high wholesale dependence fell about 2 percent more than those of banks with low dependence during the three days following Lehman Brothers' bankruptcy. This large differential return suggests that liquidity played an important role in the transmission of the crisis.Publication The 2007 Meltdown in Structured Securitization : Searching for Lessons, Not Scapegoats(Washington, DC: World Bank, 2008-10)The intensity of recent turbulence in financial markets has surprised nearly everyone. This paper searches out the root causes of the crisis, distinguishing them from scapegoating explanations that have been used in policy circles to divert attention from the underlying breakdown of incentives. Incentive conflicts explain how securitization went wrong, why credit ratings proved so inaccurate, and why it is superficial to blame the crisis on mark-to-market accounting, an unexpected loss of liquidity, or trends in globalization and deregulation in financial markets. The analysis finds disturbing implications of the crisis for Basel II and its implementation. The paper argues that the principal source of financial instability lies in contradictory political and bureaucratic incentives that undermine the effectiveness of financial regulation and supervision in every country in the world. The paper concludes by identifying reforms that would improve incentives by increasing transparency and accountability in government and industry alike.
Users also downloaded
Showing related downloaded files
Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication The Journey Ahead(Washington, DC: World Bank, 2024-10-31)The Journey Ahead: Supporting Successful Migration in Europe and Central Asia provides an in-depth analysis of international migration in Europe and Central Asia (ECA) and the implications for policy making. By identifying challenges and opportunities associated with migration in the region, it aims to inform a more nuanced, evidencebased debate on the costs and benefits of cross-border mobility. Using data-driven insights and new analysis, the report shows that migration has been an engine of prosperity and has helped address some of ECA’s demographic and socioeconomic disparities. Yet, migration’s full economic potential remains untapped. The report identifies multiple barriers keeping migration from achieving its full potential. Crucially, it argues that policies in both origin and destination countries can help maximize the development impacts of migration and effectively manage the economic, social, and political costs. Drawing from a wide range of literature, country experiences, and novel analysis, The Journey Ahead presents actionable policy options to enhance the benefits of migration for destination and origin countries and migrants themselves. Some measures can be taken unilaterally by countries, whereas others require close bilateral or regional coordination. The recommendations are tailored to different types of migration— forced displacement as well as high-skilled and low-skilled economic migration—and from the perspectives of both sending and receiving countries. This report serves as a comprehensive resource for governments, development partners, and other stakeholders throughout Europe and Central Asia, where the richness and diversity of migration experiences provide valuable insights for policy makers in other regions of the world.Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.