Has the global banking system become more fragile over time?

•We examine the evolution of credit risk co-dependence in the banking sectors of over 65 countries.•We find that there has been a significant increase in default risk co-dependence over the 3-year period leading up to the financial crisis.•We also find that countries that are more integrated with liberalized financial systems have seen a greater rise in co-dependence in their banking sectors.•This negative effect of financial openness is mitigated by a strong institutional environment that allows for efficient public and private monitoring of financial institutions.

We examine the evolution of credit risk co-dependence in the banking sectors of over 65 countries. We find that there has been a significant increase in default risk co-dependence over the 3-year period leading up to the financial crisis. We also find that countries that are more integrated with liberalized financial systems have seen a greater rise in co-dependence in their banking sectors. This negative effect of financial openness is mitigated by a strong institutional environment that allows for efficient public and private monitoring of financial institutions.