The contagious capacity of the international banking network: 1985-2009
AbstractSystemic risk among the network of international banking groups arises when financial stress threatens to crisscross many national boundaries and expose imperfect international coordination. To assess this risk, we use Rosvall and Bergstromâ€™s (PNAS, 2008, 1118-1123) information theoretic map equation to partition banking groups from 21 countries into modules. We consider a quarter of a century of data on the cross-border interbank market. We show that in the late 1980s four important financial centres formed one large super cluster that was highly contagious in terms of transmission of stress within its ranks, but less contagious on a global scale. But the expansion leading to the 2008 crisis left more transmitting hubs sharing the same total influence as a few large modules had previously. We show that this greater entanglement meant the network was more broadly contagious, and not that risk was more shared. Thus, our analysis contributes to our understanding as to why defaults in US sub-prime mortgages spread quickly through the network.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt0r89f16p.
Date of creation: 16 Oct 2011
Date of revision:
Contact details of provider:
Postal: 2127 North Hall, Santa Barbara, CA 93106-9210
Phone: (805) 893-3670
Fax: (805) 893-8830
Web page: http://www.escholarship.org/repec/ucsbecon_dwp/
More information through EDIRC
Social and Behavioral Sciences; Contagion; Finance; Networks;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-BAN-2012-03-28 (Banking)
- NEP-NET-2012-03-28 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giorgio Fagiolo & Javier Reyes & Stefano Schiavo, 2007.
"International Trade and Financial Integration : a Weighted Network Analysis,"
Sciences Po publications
2007-11, Sciences Po.
- Stefano Schiavo & Javier Reyes & Giorgio Fagiolo, 2010. "International trade and financial integration: a weighted network analysis," Quantitative Finance, Taylor and Francis Journals, vol. 10(4), pages 389-399.
- Giorgio Fagiolo & Javier Reyes & Stefano Schiavo, 2007. "International Trade and Financial Integration: A Weighted Network Analysis," LEM Papers Series 2007/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Giorgio Fagiolo & Javier Reyes & Stefano Schiavo, 2007. "International Trade and Financial Integration: a Weighted Network Analysis," Documents de Travail de l'OFCE 2007-11, Observatoire Francais des Conjonctures Economiques (OFCE).
- Manmohan Singh & Miguel A. Segoviano Basurto, 2008. "Counterparty Risk in the Over-The-Counter Derivatives Market," IMF Working Papers 08/258, International Monetary Fund.
- Stefano Battiston & Domenico Delli Gatti & Mauro Gallegati & Bruce C. Greenwald & Joseph E. Stiglitz, 2009.
"Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk,"
NBER Working Papers
15611, National Bureau of Economic Research, Inc.
- Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012. "Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1121-1141.
- Galina Hale, 2011.
"Bank relationships, business cycles, and financial crisis,"
Working Paper Series
2011-14, Federal Reserve Bank of San Francisco.
- Hale, Galina, 2012. "Bank relationships, business cycles, and financial crises," Journal of International Economics, Elsevier, vol. 88(2), pages 312-325.
- Galina Hale, 2011. "Bank Relationships, Business Cycles, and Financial Crises," NBER Working Papers 17356, National Bureau of Economic Research, Inc.
- Allen, Franklin & Gale, Douglas, 1998.
98-33, C.V. Starr Center for Applied Economics, New York University.
- Rauch, James E., 1999.
"Networks versus markets in international trade,"
Journal of International Economics,
Elsevier, vol. 48(1), pages 7-35, June.
- Andrew G Haldane & Adrian Penalver & Victoria Saporta & Hyun Song Shin, 2003.
"Analytics of sovereign debt restructuring,"
Bank of England working papers
203, Bank of England.
- Henri Bernard & Joseph Bisignano, 2000. "Information, liquidity and risk in the international interbank market: implicit guarantees and private credit market failure," BIS Working Papers 86, Bank for International Settlements.
- Nicola Cetorelli & Linda S. Goldberg, 2010.
"Global Banks and International Shock Transmission: Evidence from the Crisis,"
NBER Working Papers
15974, National Bureau of Economic Research, Inc.
- Nicola Cetorelli & Linda S Goldberg, 2011. "Global Banks and International Shock Transmission: Evidence from the Crisis," IMF Economic Review, Palgrave Macmillan, vol. 59(1), pages 41-76, April.
- Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
- Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
- Philip R. Lane & Gian-Maria Milesi-Ferretti, 2010.
"Cross-Border Investment in Small International Financial Centers,"
IMF Working Papers
10/38, International Monetary Fund.
- Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2010. "Cross-Border Investment in Small International Financial Centers," CEPR Discussion Papers 7694, C.E.P.R. Discussion Papers.
- Philip Lane & Gian Maria Milesi-Ferretti, 2009. "Cross-Border Investment in Small International Financial Centers," The Institute for International Integration Studies Discussion Paper Series iiisdp316, IIIS.
- Stijn Claessens & Luc Laeven & Deniz Igan & Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications from the Global Financial Crisis," IMF Working Papers 10/44, International Monetary Fund.
- Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).
If references are entirely missing, you can add them using this form.