Global Private Capital: A Network Perspective
49 Pages Posted: 26 Jul 2015
Date Written: July 25, 2015
The global market of inter-banking syndicated loans is a vast network of obligations upon which lenders rely for longer-term financing, and, in turn, provide to the real economy to finance projects. This network is explicitly modeled from 1998 to 2013 such that firms are nodes and loan facilities are edges in network terminology. Various measures of network topology are calculated, inclusive of temporal firm centrality, network density, transitivity, modularity, and community structure. Like many complex real-life networks, the global inter-lender network displays small world properties that insulate the network from adverse shocks overall. However, specific firms are shown to be systemically important at varying times; the removal of a systemically important firm fractures the network into dissolute communities, potentially disrupting the flow of capital to the economy. Both borrower and lender network centrality affect contract terms; overall, centrality lowers the cost of capital. Global network properties are also shown to inform micro contract terms.
Keywords: syndicated loans, interbank network, dynamic networks, systemic risk, network topology
JEL Classification: D85, G21, G23, G24
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