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The paper examines the effects of increased financial integration on the economy and, specifically, the welfare of depositors and the business sector. A simple model of a small open economy with a fragile banking sector and imperfect capital mobility is developed. Increased international integration of the market for bank deposits makes runs on banks more likely and unambiguously hurts the domestic business sector. Depositors may gain or lose depending on the parameters. Even when depositors gain, the overall effect on the economy depends on the size of foreign assets held relative to the costs of bank crises.

Banks and Banking --- Corporate Finance --- Exports and Imports --- Financial Aspects of Economic Integration --- Open Economy Macroeconomics --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International Investment --- Long-term Capital Movements --- Corporate Finance and Governance: General --- Banking --- International economics --- Ownership & organization of enterprises --- Foreign assets --- Bank deposits --- Corporate sector --- Foreign banks --- Banks and banking --- Investments, Foreign --- Business enterprises --- Banks and banking, Foreign

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This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors. It is shown that, when the creditor side of the market consists of many small investors there may be multiple rational expectations equilibria. In one equilibrium, creditors’ pessimistic expectations about the borrower’s creditworthiness become self-fulfilling, and the borrower experiences a liquidity crisis. Multiple equilibria can be avoided by marketing the loan appropriately or by developing a reputation for following good policies. Liquidity problems can also arise because of the temporary disruption of international bond markets due to events unrelated to the borrower’s circumstances. Policies responses are discussed.

Exports and Imports --- Finance: General --- Financial Risk Management --- Industries: Financial Services --- Open Economy Macroeconomics --- International Lending and Debt Problems --- Portfolio Choice --- Investment Decisions --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Finance --- International economics --- Economic & financial crises & disasters --- Liquidity --- Loans --- Securities markets --- Debt service --- Financial crises --- Asset and liability management --- Financial institutions --- Financial markets --- External debt --- Economics --- Capital market --- United States

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This paper studies whether the policies that, over the past decades, liberalized bankingsystems around the world have resulted in deeper credit markets. To measure banking sectorreforms we use a new index that tracks policy changes in five separate areas for 91 countriesover 1973-2005. We find that reforms have led to financial deepening, but only in countrieswith institutions that place checks and balances on political power. We interpret this asevidence of a complementarity between financial sector reforms and political institutions thatprotect property rights. Other country characteristics do not seem to significantly influencethe effect of banking reforms on financial development.

Finance --- Economic development --- Banks and banking --- Right of property --- Econometric models. --- Ownership of property --- Private ownership of property, Right of --- Private property, Right of --- Property, Right of --- Property rights --- Right of private ownership of property --- Right of private property --- Right to property --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Law and legislation --- Civil rights --- Property --- Financial institutions --- Money --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Markets and the Macroeconomy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary economics --- Financial sector development --- Credit --- Bank credit --- Financial services industry --- Kyrgyz Republic

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Foreign banks have greatly increased their presence in emerging market countries in recent years. This paper compares the performance of domestic banks and a long-established group of foreign banks during the recent crisis in Malaysia. We find that the sharpest differences are between banks mainly active in Asia (including all domestic and some foreign banks) and foreign banks not specialized in Asia. The latter group performed better than the rest during the crisis, maintaining higher profitability thanks to higher interest margins and lower nonperforming loans. Foreign banks did not abandon the local market during the crisis and received less government support than domestic institutions.

Banks and banking, Foreign --- Banks and banking --- Financial crises --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Foreign banks and banking --- Offshore banking (Finance) --- Banks and Banking --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financial Crises --- Banking --- Finance --- Economic & financial crises & disasters --- Foreign banks --- Nonperforming loans --- Commercial banks --- Banking crises --- Financial institutions --- Loans --- Malaysia

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In a large panel of countries, we find that less liquid countries are more likely to default on their external debt. Specifically, for given total external debt, the probability of a crisis increases with the proportion of short-term debt and debt service coming due and decreases with foreign exchange reserves. This correlation, however, is consistent with a standard model of optimal default and need not be ascribed to self-fulfilling creditor runs. Also, the correlation with short-term debt appears to be driven by joint endogeneity. The policy implications are discussed.

Exports and Imports --- Finance: General --- Financial Risk Management --- International Lending and Debt Problems --- Current Account Adjustment --- Short-term Capital Movements --- Financial Crises --- Portfolio Choice --- Investment Decisions --- International economics --- Economic & financial crises & disasters --- Finance --- Financial crises --- Liquidity --- Debt default --- Debt service --- External debt --- Asset and liability management --- Debts, External --- Economics --- Mexico