Bank Regulation, Network Topology, and Systemic Risk: Evidence from the Great Depression

66 Pages Posted: 31 Dec 2018 Last revised: 26 Aug 2022

See all articles by Sanjiv Ranjan Das

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department; National Bureau of Economic Research (NBER); CEPR; CAGE; CESifo (Center for Economic Studies and Ifo Institute)

Angela Vossmeyer

Claremont McKenna College - Robert Day School of Economics and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: December 2018

Abstract

We study how bank regulation interacts with network topology to influence systemic stability. Employing unique hand-collected data on the correspondent network for all U.S. banks on the eve of the Great Depression and a methodology that captures bank credit risk and network position, we explore how the pyramid-shaped network topology was inherently fragile and systemically risky. We measure its contribution to banking distress in the early 1930s, and show that a bank's network position as well as the risk of its network neighbors are strong predictors of bank survivorship. Institutional alternatives, such as branch banking, and alternative topologies appear to deliver networks that are more stable than the network that existed in 1929.

Suggested Citation

Das, Sanjiv Ranjan and Mitchener, Kris James and Vossmeyer, Angela, Bank Regulation, Network Topology, and Systemic Risk: Evidence from the Great Depression (December 2018). NBER Working Paper No. w25405, Available at SSRN: https://ssrn.com/abstract=3308410

Sanjiv Ranjan Das (Contact Author)

Santa Clara University - Leavey School of Business ( email )

Department of Finance
316M Lucas Hall
Santa Clara, CA 95053
United States

HOME PAGE: http://srdas.github.io/

Kris James Mitchener

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
408.554.4340 (Phone)
408.554.2331 (Fax)

HOME PAGE: http://lsb.scu.edu/~kmitchener/

National Bureau of Economic Research (NBER)

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CEPR ( email )

London
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CAGE ( email )

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London, NW10 7LQ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Angela Vossmeyer

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

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