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Financial Networks, Bank Efficiency and Risk-Taking

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  • Thiago Christiano Silva
  • Solange Maria Guerra
  • Benjamin Miranda Tabak
  • Rodrigo Cesar de Castro Miranda

Abstract

Networks with a core-periphery topology are found in many financial systems across different jurisdictions. Though the theoretical and structural aspects of core-periphery networks are clear, the consequences that core-periphery structures bring for banking efficiency stand as an open question. We address this gap in the literature by providing insights as to how the structure of financial networks can affect bank efficiency. We find that core-periphery structures are cost efficient for banks, which is a characteristic that encourages the participation of banks in financial networks. On the downside, we also show that core-periphery structures are risk-taking inefficient, because they imply higher systemic risk levels in the financial system. In this way, regulators should be aware of the excessive risk inefficiency that arises in the financial system due to individual decisions made by banks in the network

Suggested Citation

  • Thiago Christiano Silva & Solange Maria Guerra & Benjamin Miranda Tabak & Rodrigo Cesar de Castro Miranda, 2016. "Financial Networks, Bank Efficiency and Risk-Taking," Working Papers Series 428, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:428
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    Cited by:

    1. Nicholas Coleman & Ricardo Correa & Leo Feler & Jason Goldrosen, 2017. "Internal Liquidity Management and Local Credit Provision," International Finance Discussion Papers 1204, Board of Governors of the Federal Reserve System (U.S.).
    2. Thiago Christiano Silva & Benjamin Miranda Tabak, 2019. "Growth and Activity Diversification: the impact of financing non-traditional local activities," Working Papers Series 498, Central Bank of Brazil, Research Department.
    3. repec:eee:riibaf:v:48:y:2019:i:c:p:287-309 is not listed on IDEAS
    4. repec:eee:finsta:v:33:y:2017:i:c:p:96-119 is not listed on IDEAS
    5. repec:kap:rqfnac:v:51:y:2018:i:4:d:10.1007_s11156-017-0698-x is not listed on IDEAS
    6. repec:eee:riibaf:v:47:y:2019:i:c:p:195-219 is not listed on IDEAS
    7. Edoardo Gaffeo & Massimo Molinari, 2018. "A functional perspective on financial networks," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(1), pages 51-79, April.
    8. Abedifar, Pejman & Giudici, Paolo & Hashem, Shatha Qamhieh, 2017. "Heterogeneous market structure and systemic risk: Evidence from dual banking systems," Journal of Financial Stability, Elsevier, vol. 33(C), pages 96-119.
    9. Silva, Thiago Christiano & Tabak, Benjamin Miranda & Guerra, Solange Maria, 2017. "Why do vulnerability cycles matter in financial networks?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 592-606.
    10. repec:eee:phsmap:v:506:y:2018:i:c:p:1016-1025 is not listed on IDEAS
    11. repec:spr:opsear:v:55:y:2018:i:3:d:10.1007_s12597-018-0332-2 is not listed on IDEAS
    12. Thiago Christiano Silva & Solange Maria Guerra & Benjamin Miranda Tabak, 2019. "Fiscal Risk and Financial Fragility," Working Papers Series 495, Central Bank of Brazil, Research Department.
    13. Silva, Thiago Christiano & Tabak, Benjamin Miranda & Cajueiro, Daniel Oliveira & Dias, Marina Villas Boas, 2018. "Adequacy of deterministic and parametric frontiers to analyze the efficiency of Indian commercial banks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 1016-1025.
    14. repec:eee:finsta:v:38:y:2018:i:c:p:98-118 is not listed on IDEAS
    15. repec:eee:corfin:v:55:y:2019:i:c:p:105-140 is not listed on IDEAS

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