March 21, 2018

International banking networks

Financial systems of different countries have become more interconnected in recent years. This financial integration allows for a better diversification of risks. However, it is also a source of systemic risk, as cross-country interlinkages can easily transmit shocks from one banking system in one country to another banking system in another country. Thus, internationally connected banking systems entail a higher risk of spreading local shocks to a supranational or even worldwide level. The recent financial crisis has revealed how the complexity interlinkages in banking can contribute to the transmission of shocks. As the stability of one bank is determined by its interlinkages to other banks, it cannot be assessed in isolation. Thus, in order to measure systemic stability, one has to take into account the whole network structure. The network research focuses on the transmission of shocks through network linkages and the effect of the network structure on the stability of the financial system.

Published papers

Acemoglu, D., A. Ozdaglar, and A. Tahbaz-Salehi (2015). Systemic risk and stability in financial networks. American Economic Review, vol. 105(2): 564–608.

Allen, F., and A. Babus (2009). Networks in finance. In Network-based strategies and competencies: 367–382. P. Kleindorfer and J. Wind (ed.).

Allen, F., A. Babus, and E. Carletti (2012). Asset commonality, debt maturity and systemic risk. Journal of Financial Economics 104(3): 519–534.

Allen, F., and D. Gale (2000). Financial contagion. Journal of Political Economy 108(1): 1–33.

Arezki, R., and Y. Liu (2016). On the Asymmetry of Global Spillovers: Emerging Markets vs. Advanced Economies. Penn Arts & Science.

Babus, A. (2015). The formation of financial networks. RAND Journal of Economics (Forthcoming).

Billio, M., M. Getmansky, A., W. Lo, and L. Pelizzon (2012). Econometric measures of connectedness and systemic risk in the finance and insurance sectors. Journal of Financial Economics 104(3): 535–559.

Buch, C. M., and L.S. Goldberg (2014). International banking and liquidity risk transmission: Lessons from across countries. IMF Economic Review 63(3): 377-410.

Cabrales, A., P. Gottardi, and F. Vega-Redondo (2017). Risk-sharing and contagion in networks. The Review of Financial Studies 30(9): 3086-3127.

Cetorelli, N., and L. S. Goldberg (2014). Measures of Global Bank Complexity. Economic Policy Review 20(2): 107–126.

Chinazzi, M., G. Fagiolo, J.A. Reyes, and S. Schiavo (2013). Post-mortem examination of the international financial network. Journal of Economic Dynamics and Control 37(8): 1692-1713.

Degryse, H.A., M.A. Elahi, and M.F. Penas (2010). Cross-border exposures and financial contagion. International Review of Finance 10(2): 209-240.

Demirer, M., F. X. Diebold, L. Liu, and K. Yilmaz (2015). Estimating Global Bank Network Connectedness. Penn Arts & Science.

Diebold, F.X., and K. Yilmaz (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics 182(1): 119-134.

Elliott, M., B. Golub, and M.O. Jackson (2013). Financial Networks and Contagion. American Economic Review 104(10): 3115-3153.

Espinosa-Vega, M.A., and J. Sole (2011). Cross-border financial surveillance: a network perspective. Journal of Financial Economic Policy 3(3): 182-205.

European Central Bank (2010). Financial networks and financial stability. Financial Stability Review: 155-160.

Faia, E., S. Laffitte, and G. Ottaviano (2018). Foreign Expansion, Competition and Bank Risk. Journal of International Economics 118: 179-199.

Freixas, X., B.M. Parigi, and J.C. Rochet (2000). Systemic risk, interbank relations, and liquidity provision by the central bank. Journal of Money, Credit and Banking 32(3): 611-38.

Gai, P., and S. Kapadia (2010). Contagion in financial networks. Proceedings of the Royal Society 466(2120): 2401–2423.

Georg, C.-P. (2013). The effect of the interbank network structure on contagion and common shocks. Journal of Banking and Finance 37(7): 2216–2228.

Glassermann, P., and H. Peyton Young (2014). How likely is contagion in financial networks?. Journal of Banking and Finance 50: 383-399.

Gounopoulos, Dimitrios, N. Palalidis, R. Kizys, and Y. Koutelidakis (2015). Transmission channels of systemic risk and contagion in the European financial network. Journal of Banking & Finance.

Hale, G. (2012). Bank relationships, business cycles, and financial crises. Journal of International Economics 88(2): 312-325.

Klinger, T., and P. Teply (2018). Agent-based modeling of systemic risk in the European banking sector. Journal of Economic Interaction and Coordination 14, 811-833.

Leitner, Y. (2005). Financial networks: Contagion, commitment, and private sector bailouts. Journal of Finance 60 (6): 2925–2953.

Minoiu, C., and J. A. Reyes (2013). A network analysis of global banking: 1978-2010. Journal of Financial Stability 9(2): 168–184.

Nier, E., J. Yang, T. Yorulmazer, and A. Alentorn (2007). Network models and financial stability. Journal of Economic Dynamics and Control 31(6): 2033–2060.

Paltalidis, N., D. Gounopoulos, R. Kizys, and Y. Koutelidakis (2015). Transmission channels of systemic risk and contagion in the European financial network. Journal of Banking & Finance 61(1): 36-52.

Schweitzer, F., G. Fagiolo, D. Sornette, F. Vega-Redondo, A. Vespignani, and D.R. White (2009). Economic networks: The new challenges. Science 325(422): 422-425.

Sun, A.J., and J.A. Chan-Lau (2017). Financial Network and Interconnected Risk in an Advanced Emerging Economy. Journal of Quantitative Finance 17: 1833-1858.

Teteryatnikova, M. (2014). Systemic risk in banking networks: Advantages of ‘tiered’ banking systems. Journal of Economic Dynamics & Control 47: 186-210.

Upper, C. (2010). Simulation methods to assess the danger of contagion in interbank markets. Journal of Financial Stability 7(3): 111-125.

Von Peter, G. (2007). International banking centres: A network perspective. BIS Quarterly Review.

Working and discussion papers

Abad, J., M. D’Errico, N. Killeen, V. Luz, T. Peltonen, R. Portes, and T. Urbano (2017). Mapping the interconnectedness between EU banks and shadow banking entities. CEPR Working Paper 11919.

Aldasoro, I., D. Delli Gatti, and E. Faia (2016). Bank networks: contagion, systemic risk and prudential policy. BIS Working Papers No 597.

Anon. (2019). An examination of initial experience with the global systemically important bank framework. BCBS Working Paper No. 34.

Avdjiev, S., and E. Takáts (2016). Monetary Policy Spillovers and Currency Networks in Cross-Border Bank Lending. BIS Working Paper No 549.

Bernard, B., A. Capponi, and J. E. Stiglitz (2017). Bail-ins and Bail-outs: Incentives, Connectivity, and Systemic Stability. NBER Working Paper No. 23747.

Bolton, P., and M. Oehmke (2018). Bank Resolution and the Structure of Global Banks. CEPR Discussion Paper DP13032.

Brunnermeier, M., L. Clerc, Y. El Omari, S. Gabrieli, S. Kern, C. Memmel, T. Peltonen, N.Podlich, M.Scheicher, and G. Vuillemey (2014). Assessing contagion risks from the CDS market. European Systemic Risk Board Occasional Paper Series 4/2013.

Calomiris, C. W., M. S. Jaremski, D. C. Wheelock (2019). Interbank Connections, Contagion and Bank Distress in the Great Depression. NBER Working Paper No. 25897.

Cerutti, E. M., and H. Zhou (2017). The Global Banking Network in the Aftermath of the Crisis: Is There Evidence of De-globalization? IMF Working Paper No. 17/232.

Cerutti, E. M., and H. Zhou (2018). The Global Banking Network: What is Behind the Increasing Regionalization Trend? Working Paper No. 18/46.

Cohen-Cole, E., E. Patacchini, and Y. Zenou (2011). Systemic risk and network formation in the interbank market. CEPR Discussion Papers 8332.

Craig, B.R., M. Koetter, and U. Kruger (2014). Interbank lending and distress: Observables, unobservables, and network structure. Working Paper 1418, Federal Reserve Bank of Cleveland.

Cull, R., M. S. Martinez Peria, and J. Verrier (2017). Bank Ownership: Trends and Implications. IMF Working Paper No. 17/60.

Demange, G. (2015). Contagion in financial networks: A threat index. CESifo Working Paper No. 5307.

Faia, E., S. Laffitte, and G. Ottaviano (2018). Foreign Expansion, Competition and Bank Risk. CEPR Discussion Papers No. 13150.

Flood, M. D., D. Y. Kenett, R. L. Lumsdaine, and J. K. Simon (2017). The Complexity of Bank Holding Companies: A Topological Approach. NBER Working Paper No. 23755

Gabrieli, S., and C.-P. Georg (2014). A network view on interbank market freezes. Deutsche Bundesbank Discussion Paper 44/2014.

Garratt, R., L. Mahadeva, and K. Svirydzenka (2011). Mapping systemic risk in the international banking network. Bank of England Working Paper 413.

Hale, G., T. Kapan and C. Minoiu (2016). Crisis Transmission in the Global Banking Network. IMF Working Paper No. 16/91.

Liedorp, F.R., L. Medema, M. Koetter, R.H. Koning, and I. van Lelyveld (2010). Peer monitoring or contagion? Interbank market exposure and bank risk. DNB Working Papers 248.

Lin, C., L. Ross, and Z. Wang (2017). Acquiring Banking Networks. NBER Working Paper No. 23469.

Lumsdaine, R., D. Rockmore, N. Foti, G. Leibon and J.D. Farmer (2016). The Intrafirm Complexity of Systemically Important Financial Institutions. Available on SSRN.

Macchiati, V., G. Brandi, G. Cimini, G. Caldarelli, D. Paolotti, T. Di Matteo (2019) Systemic liquidity contagion in the European interbank market. Available at arXiv:1912.13275

Markose, S., S. Giansante, N. A. Eterovic, and M. Gatkowski (2017). Early Warning and Systemic Risk in Core Global Banking: Balance Sheet Financial Network and Market Price-based Methods. Available on SSRN.

Morrison, A., M. Vasios, M. Wilson, and F. Zikes (2017). Identifying contagion in a banking network. Bank of England Working Paper No. 642.

Paravisini, D., and P. Schnabl (2017). Specialization in Bank Lending: Evidence from Exporting Firms. CEPR Discussion Paper 12156.

Ziya Gorpe, M., G. Covi, C. Kok (2019). CoMap: Mapping Contagion in the Euro Area Banking Sector. IMF Working Paper No. 19/102.

Other articles

Bos, J.W., M.G. Contreras, and S. Kleimeier (2013). The evolution of the global corporate loan market and syndicate formation: A network perspective. Presented at the 35th DRUID Celebration Conference 2013, Barcelona, Spain, June 17-19.

David, A. and A. Lehar (2015). Imperfect renegotiation in interbank financial networks. Mimeo.

Haldane, A.G. (2009). Rethinking the financial network. Speech delivered at the Financial Student Association, Amsterdam.

Hale, G., T. Kapan, and C. Minoiu (2013). Crisis transmission in the global banking network. Mimeo.

Wang, J.J. (2015). Distress dispersion and systemic risk in networks. Available at SSRN: