Cross-border banking, for instance, tends to improve overall economic performance by ensuring that productive capital is channelled towards the most efficient firms, thereby reducing the risk of crises stemming from the mispricing of investment risk.
6 Financial integration in general assists domestic financial systems in allocating resources across industrial sectors in a way which improves the overall diversification of the economy and lowers its volatility. As a result, an optimally diversified economy is less prone to recessions, and so its real sector responds less to the same shock than an economy which relies on just a few sectors.