BANKING NETWORKS AND LEVERAGE DEPENDENCE IN EMERGING COUNTRIES

Diego Aparicio and Daniel Fraiman
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Diego Aparicio: Department of Economics, Massachusetts Institute of Technology, 77 Massachusetts Ave., Cambridge, MA 02139, United States
Daniel Fraiman: Departamento de Matemática y Ciencias, Universidad de San Andrés, Vito Dumas 284, B1644BID, Victoria, Buenos Aires, Argentina3CONICET, Argentina

Advances in Complex Systems (ACS), 2015, vol. 18, issue 07n08, 1-21

Abstract: We construct banking networks using bank-level balance sheet data from 2005 to 2010 from five emerging countries: Argentina, Brazil, Mexico, South Africa, and Taiwan. The network interaction is based on the leverage ratio dependence between each pair of banks within a same country. Despite leverage and accounting rules heterogeneity, the results are robust across countries. The leverage diversity produces financial networks with a modular structure characterized by one large bank community, some small ones, and isolated banks. However, these groups of banks merge together creating a financial network topology that converges to a unique large cluster at a relatively low leverage dependence level. Finally, we simulate the banking system through a model of corporate and interbank loans with credit shocks, where links between banks arise due to insufficient liquidity. The model yields leverage-based networks that are similar to the empirical ones. A model prediction for banks’ growth is presented and tested in the data.

Keywords: Leverage dynamics; banking network; balance sheet data (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219525915500228

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