Anginer, DenizDemirgüç-Kunt, Asli2012-03-192012-03-192011-10-01https://hdl.handle.net/10986/3644This 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.CC BY 3.0 IGOACCOUNTINGASSET LIQUIDITYASSET PRICESASSET VALUEASSET VALUESASSETS RATIOBACKED SECURITIESBALANCE SHEETBANK ASSETSBANK CAPITALBANK DEPOSITBANK DEPOSITSBANK OF ENGLANDBANK POLICYBANK SUPERVISIONBANKING CRISESBANKING CRISISBANKING REGULATIONBANKING SECTORBANKING SECTORSBANKING SUPERVISIONBANKING SYSTEMBANKRUPTCYBANKSBARRIERBORROWING COSTSCALL OPTIONCAPITAL ASSETSCAPITAL CONTROLCAPITAL FLOWSCAPITAL RATIOCAPITAL REQUIREMENTSCAPITALIZATIONCDSCENTRAL BANKCOMMERCIAL BANKSCOMMUNICATIONS TECHNOLOGYCONNECTIVITYCONSOLIDATIONCORPORATE DEBTCOUNTRY DUMMYCOUNTRY FIXED EFFECTSCREDIT RISKDEBTDEFAULT PROBABILITIESDEFAULT PROBABILITYDEFAULT RISKDEFAULTSDEMAND DEPOSITSDEPOSITDEPOSIT INSURANCEDEPOSIT INSURANCE COVERAGEDEPOSIT MONEY BANKSDEREGULATIONDEVELOPING COUNTRIESDIVIDENDDIVIDEND RATEDIVIDENDSDUMMY VARIABLEDUMMY VARIABLESECONOMIC INTEGRATIONECONOMIC POLICYECONOMICSEQUITY PORTFOLIOSEQUITY PRICESEQUITY RETURNSEQUITY VALUEEXPOSUREEXPOSURE TO RISKEXTERNALITIESFACE VALUEFEDERAL RESERVEFEDERAL RESERVE BANKFEDERAL RESERVE BANK OF NEW YORKFINANCIAL CONTAGIONFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL INSTITUTIONSFINANCIAL INSTRUMENTSFINANCIAL INTERMEDIARYFINANCIAL LIBERALIZATIONFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL REFORMFINANCIAL REFORMSFINANCIAL REGULATIONFINANCIAL SECTORFINANCIAL STABILITYFINANCIAL STRUCTUREFINANCIAL STUDIESFINANCIAL SYSTEMFINANCIAL SYSTEMSFINANCIAL TRANSACTIONSFOREIGN INVESTORSGLOBAL BANKINGGLOBALIZATIONGOVERNMENT POLICIESHEDGE FUNDHEDGE FUNDSILLIQUIDITYIMPLICIT GUARANTEEINFLATIONINFLATION RISKINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL DIVERSIFICATIONINTERNATIONAL EQUITYINTERNATIONAL FINANCIAL TRANSACTIONSINTERNATIONAL MARKETSINTERPOLATIONJURISDICTIONSLIQUID ASSETSLIQUIDITY CREATIONLIQUIDITY RISKLONG TERM LIABILITIESLONG-TERM LIABILITIESMARKET CAPITALIZATIONMARKET CAPITALIZATIONSMARKET DATAMARKET EQUITYMARKET TURNOVERMARKET VALUEMORAL HAZARDMORTGAGENEGATIVE SHOCKPOLITICAL ECONOMYPORTFOLIOPORTFOLIOSPRICE DISCOVERYPRIVATE SECTOR DEVELOPMENTPROBABILITY OF DEFAULTPRODUCTIVITYPRUDENTIAL REGULATIONPRUDENTIAL REGULATIONSRAPID DEVELOPMENTRECESSIONREGULATORY FRAMEWORKSRESERVESRISK DIVERSIFICATIONRISK PREMIUMRISK SHARINGSAFETY NETSECURITIES MARKETSSECURITY MARKETSHARE OF ASSETSSHORT TERM DEBTSHORT-TERM BORROWINGSTOCK MARKETSTOCK MARKET CAPITALIZATIONSTOCK MARKETSSTOCK PRICESSTOCK RETURNSSYSTEMIC RISKTRADE LIBERALIZATIONTREASURYTREASURY BILLTREASURY BILL RATETURNOVER RATIOUNIONVALUE OF ASSETSVOLATILITYWORLD DEVELOPMENT INDICATORWORLD ECONOMYWorld Bank10.1596/1813-9450-5849