Interconnectedness of banks in selected Asia-Pacific countries and risk of contagion on Philippine banks

• Main Author: Hutalla, Jessica P.
• Format: text
• Language: English
• Published: Animo Repository 2019
• Subjects: Banks and banking—Asia; Financial institutions; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/7151
• Institution: De La Salle University

In the international transmission of shocks, banks play a specific role. In particular, the liquidity supply of a local banking system may be threatened by the economic condition of its foreign counterparty bank. A possible transmission of shock may be detected by assessing the long-run relationship of macro-economic and financial variables of a foreign counterparty. In order to investigate the long-run equilibrium of Philippine banks’ cross-border liquidity position to selected macro-economic variables of selected Asia-Pacific provider of funds, this study utilizes Johansen Test for Cointegration, followed by Vector Error Correction Model or Autoregressive Distributed Lag Model to further test for any short-run dynamics. Results of this study reveal that long run, as well as short-run relationships among indicators, varies from each counterparty. Hence, there is a need to perform individual surveillance.