Crisis Transmission in the Global Banking Network

39 Pages Posted: 9 Dec 2016

See all articles by Galina Hale

Galina Hale

Federal Reserve Bank of San Francisco

Tümer Kapan

Federal National Mortgage Association (Fannie Mae)

Camelia Minoiu

Federal Reserve Board

Date Written: April 2016

Abstract

We study the transmission of financial sector shocks across borders through international bank connections. For this purpose, we use data on long-term interbank loans among more than 6,000 banks during 1997-2012 to construct a yearly global network of interbank exposures. We estimate the effect of direct (first-degree) and indirect (second-degree) exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks' profit margins, thereby reducing their returns. Indirect exposures to crisis countries enhance this effect, while indirect exposures to non-crisis countries mitigate it. Furthermore, crisis exposures have real effects in that they reduce banks' supply of domestic and cross-border loans. Our results, based on a large global sample, support the notion that interconnected financial systems facilitate shock transmission.

Keywords: International banking, External shocks, Financial crises, Banks, Profits, Loans, Financial sector, shock transmission, long-term interbank exposures, systemic banking crises, financial networks, syndicated loans

JEL Classification: F34, F36, G21

Suggested Citation

Hale, Galina and Kapan, Tümer and Minoiu, Camelia, Crisis Transmission in the Global Banking Network (April 2016). IMF Working Paper No. 16/91. Available at SSRN: https://ssrn.com/abstract=2882655

Galina Hale (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3131 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economic-research/economists/galina-hale/

Tümer Kapan

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Camelia Minoiu

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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