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Interconnectedness through the Lens of Consumer Credit Markets

In: The Econometrics of Networks

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  • Anson T. Y. Ho

Abstract

Financial systemic risk is often assessed by the interconnectedness of financial institutes (FI) in terms of cross-ownership, overlapping investment portfolios, interbank credit exposures, etc. Less is known about the interconnectedness between FIs through the lens of consumer credits. Using detailed consumer credit data in Canada, this chapter constructs a novel banking network to measure FIs’ interconnectedness in the consumer credit markets. Results show that FIs on average are more connected to each other over the sample period, with the interconnectedness measure increases by 19% from 2013 Q4 to 2019 Q4. FIs with more diversified portfolios are more connected in the network. Among various types of FIs, secondary FIs have the notable increase in interconnectedness. Domestic Systemically Important Banks and secondary FIs offering a broad range of loan products are more connected to large FIs, while those specialized in single loan types are more connected to their industry peers. FI connectedness is also significantly related to their participation in the mortgage markets.

Suggested Citation

  • Anson T. Y. Ho, 2020. "Interconnectedness through the Lens of Consumer Credit Markets," Advances in Econometrics, in: The Econometrics of Networks, volume 42, pages 315-333, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-905320200000042015
    DOI: 10.1108/S0731-905320200000042015
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    More about this item

    Keywords

    D85; G01; G18; G21; Financial network; interconnectedness; overlapping portfolios; consumer credit; financial stability; systemic risk;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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