Besides, improved risk-sharing enhances in turn the ability of countries to specialize in their most productive sectors, leading to increased economic efficiency. 5 Furthermore, pre-crisis research had suggested that the cross-border diversification of large banks improves the soundness of the banking system by making individual bank failures less likely.
On a related issue, we should recall that a primary role of interbank markets is to provide banks with an efficient risk-sharing tool. Another channel through which financial integration improves macroeconomic stability is allocative efficiency and economic diversification.