Interbank network and banks' credit supply

Giovanni Covi and Xian Gu ()
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Xian Gu: Durham University Business School

No 1005, Bank of England working papers from Bank of England

Abstract: This paper examines how the interbank network structure influences banks’ credit supply to the real economy. Using the dynamic UK interbank networks based on the quarterly evolutions of bilateral exposures from 2014 to 2021, we find evidence of both risk-sharing effect through the interbank core-periphery structure and liquidity-insurance effect within interbank lending communities. Core banks with high global centrality and banks in a larger community tend to lend more to non-financial firms. The effect of global centrality is still significant after controlling for the local effects including local centrality and community size. During the Covid-19 pandemic, the effect of risk sharing is mitigated whereas the effect of community lending is strengthened.

Keywords: Interbank network; centrality; community; bank loans; Covid-19 (search for similar items in EconPapers)
JEL-codes: G20 G21 L14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2022-11-18
New Economics Papers: this item is included in nep-fdg and nep-net
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1005

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