Financial integration and the resulting interconnections among financial and nonfinancial institutions provide benefits and risks for countries. As articulated in earlier chapters in this book, financial integration can bring important benefits to both banks and clients, including lower funding costs, risk diversification, deeper liquid markets, increased competition, and efficiency in the financial system. At the same time, with conglomerates operating in multiple jurisdictions in the LA-7 countries (Brazil, Chile, Colombia, Mexico, Panama, Peru, and Uruguay) and across the Central American region, country-specific weaknesses in regulatory and supervisory frameworks or insufficient regional coordination may allow regulatory arbitrage. Moreover, financial integration can increase spillover risks and lead to contagion across the region in the event of a crisis.
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