Risk Sharing and Amplification in the Global Financial Network

73 Pages Posted: 16 Feb 2022 Last revised: 4 Oct 2022

See all articles by Leslie Sheng Shen

Leslie Sheng Shen

Federal Reserve Banks - Federal Reserve Bank of Boston

Tony Zhang

Board of Governors of the Federal Reserve System

Date Written: October 2022

Abstract

We estimate the price elasticities of cross-border loan supply and demand across 19 countries, using a structural model of the global financial network and balance sheet data of internationally-active banks. We find significant heterogeneity in the willingness and capacity of global banks to provide interbank and non-financial loans. We show that this heterogeneity is key to explaining the variation in risk sharing and shock propagation both across countries and over time. In particular, cross-border lending supply has become less elastic since the global financial crisis, resulting in a weakening of international risk sharing. We provide suggestive evidence that the tightening of macroprudential policy has contributed to the decline in risk sharing.

Keywords: Global Banking System, Risk Sharing, Shock Propagation, Cross-border Capital Flows

Suggested Citation

Shen, Leslie Sheng and Zhang, Tony, Risk Sharing and Amplification in the Global Financial Network (October 2022). Available at SSRN: https://ssrn.com/abstract=4032741 or http://dx.doi.org/10.2139/ssrn.4032741

Leslie Sheng Shen

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

HOME PAGE: http://www.lsshen.com

Tony Zhang (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
114
Abstract Views
331
rank
347,412
PlumX Metrics