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

67 Pages Posted: 21 Feb 2019

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: 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.

Keywords: systemic risk, banking networks, Great Depression, peer effects, branch banking, model comparison

JEL Classification: L100, E420, E440, G01, G180, G210, N120, N220

Suggested Citation

Das, Sanjiv Ranjan and Mitchener, Kris James and Vossmeyer, Angela, Bank Regulation, Network Topology, and Systemic Risk: Evidence from the Great Depression (2018). CESifo Working Paper No. 7425, Available at SSRN: https://ssrn.com/abstract=3338779 or http://dx.doi.org/10.2139/ssrn.3338779

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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Cambridge, MA 02138
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CEPR ( email )

London
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CAGE ( email )

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London, NW10 7LQ
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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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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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