<p>This paper examines the effects of regional financial cooperation among economies at risk of financial crises (“sudden stops”), with a focus on business cycle correlations among member countries. The analysis is based on a small open economy model that incorporates liability dollarization and an occasionally binding borrowing constraint, and mutual liquidity provision is introduced. Simulation results show that financial cooperation can reduce the likelihood of a sudden stop and improve welfare by supporting collateral values and facilitating consumption smoothing. When the policy is implemented for wide range of recessions, its crisis-prevention effect is stronger for economies with positively correlated output. This is because the expectation of simultaneous recessions induces a precautionary saving motive and mitigates the increase in borrowing driven by excessive risk taking in normal times. In contrast, welfare gains from cooperation are larger for countries with negatively correlated shocks, implying a trade-off for policymakers between crisis prevention and welfare effects. Simulations using data from selected Southeast Asian economies indicate that such cooperation can lower crisis probability and enhance welfare, although the effects are limited at the current scale of these policies. These findings could provide useful guidance for the design and adoption of regional financial cooperation.</p>