Contagion in banking due to BCCI'S failure: Evidence from national equity indices

We examine whether the failure of the multinational banking group BCCI caused contagion effects in the banking sectors of four countries where BCCI had established operations, namely the UK, the US, Spain and Switzerland. We find evidence of contagion effects in the UK and Spain which appear to have registered several months before the eventual closure announcement. There is no evidence of contagion effects in the US and Switzerland. Our results have implications for the stability of the European banking sector, as banks licensed anywhere in the EU will be able to set up branches in other EU countries without needing to obtain further authorization. © 2004 John Wiley & Sons, Ltd.