Mapping financial integration in East Asia

In addition to expected efficiency gains, an increasingly important policy concern about deepening financial integration is whether it brings greater vulnerability to shocks. Conventional measures of financial integration do little to reveal this. This paper explores a different approach to measuring financial integration, highlighting interconnectedness in a network of financial flows. Applying an adapted version of eigenvector centrality, often used in network analysis, a new measure is developed to provide a more complete picture of how countries are embedded global and regional financial networks. Our measure reinforces the view of the United States and the United Kingdom as the ‘core’ in the global banking network, with all other countries scattered in the ‘periphery’ but it reveals some previously unseen patterns in Asia. With China rapidly integrating with the region, the Asian banking network increasingly resembles the structure of the global network, with a core and periphery. This is the beginning of essential work to discover whether such network structures pose an added threat of shock transmission around the region.