Financial crisis and cointegration of systemic risk in Southeast Asian banking

Herman Saheruddin (Indonesia Deposit Insurance Corporation Jl. Jenderal Sudirman Kav.52-53, Jakarta 12190)
Wahyoe Soedarmono (Department of Management, Faculty of Business, Sampoerna University Jl. Raya Pasar Minggu Kav.16, Jakarta, 12780)

Jurnal Keuangan dan Perbankan
Vol 23, No 4 (2019): October 2019

This paper aims to investigate the banking sector integration through a cointegration analysis of bank systemic risk in ASEAN-5 from 1998 to 2013 by taking financial crises into consideration. Our empirical findings highlight that there is one cointegrating vector in general, suggesting that the ASEAN-5 banking sectors are not completely segmented in terms of systemic risk. A closer investigation, however, reveals that the banking sectors were completely segmented during the 1997/1998 Asian financial crisis (AFC) and partially segmented during the 2008 global financial crisis (GFC). The latter might indicate an improvement in banking sector integration in several countries of ASEAN-5 during the GFC compared to during the AFC. Hence, this paper highlights that the agenda of banking sector integration in ASEAN-5 should consider the influence of financial crises to ensure the effectiveness of cross-border crisis management protocol when the ASEAN-5 banking sector tends to be segmented in times of crisis. In general, portfolio diversification in ASEAN-5 also remains beneficial for global investors in banking.JEL Classification: F36, G21, G28DOI: https://doi.org/10.26905/jkdp.v23i4.3669