Shockwaves across borders: Did the 2023 banking crisis reshape global banking sector linkages?

• We study the effects of the 2023 banking crisis on U.S.-global banking sector coherence. • The crisis triggered contagion across banking sectors over the short term. • Co-movement was driven by U.S. monetary policy shifts and risk perceptions. • Post-crisis, interdependence weakened but contagion persisted for some countries. • Increased medium- to long-term diversification opportunities exist post-crisis. We investigate the impact of the 2023 banking crisis, the most significant banking system turmoil since the Global Financial Crisis (GFC), on co-movement between the United States (U.S.) and global banking sectors. Using wavelet coherence and beta regressions, we find strong contagion during the crisis. The crisis primarily impacted co-movement through a change in U.S. monetary policy and heightened risk perceptions. Post-crisis, interdependence weakened, although contagion persisted for some countries. Our results highlight the success of post-GFC reforms and swift government and central bank interventions in containing systemic risk during the crisis and suggest increased post-crisis diversification opportunities for investors.