Global Integration of the Banking Industry: Evidence from the Switzerland of the East Based on a Markov Regime Switching Approach

Abstract

Due to the crucial role that banks play in the economy and the financial system, the issue of global integration of banks is of utmost importance. However, at present, the evidence on this issue is mixed. We therefore re-examine this issue with respect to a well-known international financial centre - Singapore. We test whether Singaporean banks are globally integrated in terms of the extent, duration and speed of co-movement of the bank stock prices of Singapore with those of the top three global financial centres - the US, UK and Japan based on a Markov regime switching approach. This approach allows us to incorporate market cycles into the analysis. Our results provide evidence of the integration of the Singaporean banking industry with that of the US and to a lesser extent with that of the UK; but not with that of Japan, however. Given the present turmoil in the US banking industry arising out of non-performing loans, our findings create concern about spill-over effects arising from these events in the US.