Bank relationships, business cycles, and financial crisis

Galina Hale

No 2011-14, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Recent literature argues that the structure of a banking network is important for its stability. We use network analysis to formally describe bank relationships in the global banking network between 1980 and 2009 and analyze the effects of recessions and banking crises on these relationships. We construct a novel data set that builds a bank-level global network from loan-level data on syndicated loans to financial institutions. Our network consists of 7938 banking institutions from 141 countries. We find that the network became more interconnected and more asymmetric, and therefore potentially more fragile, prior to 2008, and that its expansion slowed in recent years, dramatically so during the 2008-09 crisis. We use a stylized model to describe potential effects of banking crises and recessions on bank relationships. Empirically, we find that the structure of a global banking network is not invariant to banking crises nor to recessions, especially those in the United States. While recessions appear to encourage banks to make new connections, especially on the periphery of the network, the global financial crisis of 2008-09 made banks very cautious in their lending, meaning that almost no new connections were made during the crisis, particularly in 2009. We also find that during country-specific recessions or banking crises past relationships become more important as few new relationships are formed.

Keywords: Banks and banking; Financial crises (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-cba and nep-net
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Related works:
Journal Article: Bank relationships, business cycles, and financial crises (2012)
Chapter: Bank Relationships, Business Cycles, and Financial Crises (2011)
Working Paper: Bank Relationships, Business Cycles, and Financial Crises (2011)
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