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Bank Relationships, Business Cycles, and Financial Crises

In: Global Financial Crisis

  • Galina Hale

The importance of information asymmetries in the capital markets is commonly accepted as one of the main reasons for home bias in investment. We posit that effects of such asymmetries may be reduced through relationships between banks established through bank-to-bank lending and provide evidence to support this claim. To analyze dynamics of formation of such relationships during 1980-2009 time period, we construct a global banking network of 7938 banking institutions from 141 countries. We find that recessions and banking crises tend to have negative effects on the formation of new connections and that these effects are not the same for all countries or all banks. We also find that the global financial crisis of 2008-09 had a large negative impact on the formation of new relationships in the global banking network, especially by large banks that have been previously immune to effects of banking crises and recessions.

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This chapter was published in:
  • Charles Engel & Kristin Forbes & Jeffrey Frankel, 2012. "Global Financial Crisis," NBER Books, National Bureau of Economic Research, Inc, number enge11-2, December.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13162.
    Handle: RePEc:nbr:nberch:13162
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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