Shareholding Relationships and Financial Crisis: A Network Analysis

Nicolò Pecora and Alessandro Spelta

A chapter in Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons, 2015, vol. 24, pp 497-516 from Emerald Group Publishing Limited

Abstract: One of the main lessons of the recent financial crisis is that the network structure of the banking system has to be taken into account to assess systemic risk. In this chapter, we analyze the topological properties of the network of the Euro Area banking sector with the primary aim of assessing the importance of a bank in the financial system with respect to ownership and control of other credit institutions. The network displays power law distributions in both binary and weighted degree metrics indicating arobust yet fragilestructure and a direct nexus between an increase of control diversification and a rise in the market power. Therefore, while in good time the network is seemingly robust, in bad times many banks can go into distress simultaneously. This behavior opens a narrow for Central bank’s actions. In particular, we investigate whether the Single Supervisory Mechanism introduced by the European Central Banks and based on banks’ total asset is a good proxy to quantify their systemic importance. Results indicate that not all the financial institutions with high value of total asset are systemically important but only few of them.

Keywords: shareholding network; European banking system; weighted graphs; power law; D85; E58; L14 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620150000024026

DOI: 10.1108/S1571-038620150000024026

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