Being aware of the links between financial integration and financial stability is therefore essential. The links between financial integration and financial stability are twofold. On the one hand, more integrated financial markets offer better opportunities for financing and risk diversification, and thus help to improve the capacity of economies to absorb shocks.
Cross-border banking broadens and deepens financial markets and increases liquidity and risk sharing. As the pool of available assets for investment is broadened, potentially enhancing the heterogeneity of financial institutions’ portfolios, the ensuing wider spread of portfolio-related risks should reinforce the resilience and shock-absorption capacity of financial intermediaries, thus improving the soundness and robustness of an integrated financial system.