Evaluation of the post-crisis EU banking network connectedness in the global context

Keywords: network analysis, financial connectedness, regionalization, EU banking network, global banking network

Abstract

Research background: The global banking network has been undergoing structural changes since the recent financial crisis. Previous studies on connectedness of global banking network during post-crisis period revealed the trends of regionalization and segmentation. Our previous research has also shown that during post-crisis period the level of regionalization within the EU banking network has increased; the network became more clustered and more decentralized. This paper continues our research of structural changes of EU banking network during post-crisis period by adding a global context and questioning the connectedness of EU banking network within global banking system.

Purpose of the article: The aim of the paper is to evaluate the EU banking network’s connectedness in the global context during the post-crisis period.

Methods: network analysis method and data on yearly flows of BIS bilateral interbank cross-border claim were used to evaluate the connectedness of global and EU banking systems.

Findings & Value added: Evaluation of the global banking network’s connected-ness revealed that global banking network density decreased by 4.50 %, suggesting that connectedness is decreasing, but it is happening slowly. Structural changes in the global banking network did happen during post-crisis period with regards to out-degree, betweenness and closeness centrality indicators. In the global context, the EU banking network became more connected during post-crisis period. The EU banking network was regionalized in 2011, but this regionalization disappeared in 2015, as the level of intraregional density decreased in 2015 and became lower than the interregional density. This research contributes to previous research in a way that it applies intraregional and interregional network density measures for evaluation of the EU banking network’s connectedness, and analyses it as a subset of the global banking network.

Downloads

Download data is not yet available.

References

BIS, About banking statistics (2017). Retrieved from http://www.bis.org/statistics /about_banking_stats.htm (17.02.2018).

BIS LBS by residence data (2016). Bilateral interbank cross-border claims adjusted changes data. Retrieved from http://www.bis.org/statistics/bankstats.htm (01.04.2018).

Blondel, V. D., Guillaume, J. L., Lambiotte, R., & Lefebvre, E. (2008). Fast unfolding of communities in large networks. Journal of Statistical Mechanics: Theory and Experiment, 10. doi: 10.1088/1742-5468/2008/10/P10008.

Bremus, F., & Fratzscher, M. (2015). Drivers of structural change in cross-border banking since the global financial crisis. Journal of International Money and Finance, 52(C). doi: 10.1016/j.jimonfin.2014.11.012.

Caccioli, F., Farmer, J. D., Foti, N., & Rockmore, D. (2013). How interbank lending amplifies overlapping portfolio contagion: a case study of the Austrian banking network. SFI Working Paper, 2013-07-024.

Čihák, M., Muñoz, S., & Scuzzarella, R. (2011). The bright and the dark side of cross-border banking linkages. IMF Working Paper, WP/11/186.

Claessens, S., & van Horen, N. (2015). The impact of the global financial crisis on banking globalization. DNB Working Paper, 459.

Duan, J. C., & Zhang, C. (2013). Cascading defaults and systemic risk of a banking network Retrieved form https://papers.ssrn.com/sol3/papers.cfm?abstract _id=2278168 (7.11.2013).

Feng, X., & Hu, H. (2013). Measurement and internalization of systemic risk in a global banking network. International Journal of Modern Physics C, 24(1). doi: 10.1142/S0129183112500933.

Feng, X., Seong Jo, W., & Jun Kim, B. (2014). International transmission of shocks and fragility of a bank network. Physica A, 403(6). doi: 10.1016/ j.physa.2014.02.030.

Gaigaliene, A., Jurakovaite, O., & Legenzova, R. (2018). Assessment of EU banking network regionalization during post-crisis period. Oeconomia Copernicana, 9(4). doi: 10.24136/oc.2018.032.

Garratt, R. J., Mahadeva, L., & Svirydzenka, K. (2011). Mapping systemic risk in the international banking network. Bank of England Working Paper, 413.

Garratt, R. J., Mahadeva, L., & Svirydzenka, K. (2014). The great entanglement: the contagious capacity of the international banking network just before the 2008 crisis. Journal of Banking & Finance, 49(12). doi: 10.1016/j.jbankfin. 2013.12.025.

Ho, T. S. Y., Palacios, M., & Stoll, H. R. (2013). Dynamic financial system: complexity, fragility and regulatory principles. Financial Markets, Institutions & Instruments, 22(1). doi: 10.1111/fmii.12002.

Kim, S., & Shin, E. H. (2002). A longitudinal analysis of globalization and regionalization in international trade: a social network approach. Social Forces, 81(2).

Lambert, F., Deb, P., Ehrentraud, J., & Gonzįlez-Hermosillo, B. (2015). International banking after the crisis: increasingly local and safer? International Monetary Fund, April.

Martinez-Jaramillo, S., Alexandrova-Kabadjova, B., Bravo-Benitez, B., & Solórzano-Margain, J. P. (2014). An empirical study of the Mexican banking system’s network and its implications for systemic risk. Journal of Economic Dynamics & Control, 40(C). doi: 10.1016/j.jedc.2014.01.009.

Minoiu, C., & Reyes, J. A. (2013). A network analysis of global banking: 1978-2009. Journal of Financial Stability, 9(2). doi: 10.1016/j.jfs.2013.03.001.

Paltalidis, N., Gounopoulos, D., Kizys, R., & Koutelidakis, Y. (2015). Transmission channels of systemic risk and contagion in the European financial network. Journal of Banking & Finance, 61(S1). doi: 10.1016/j.jbankfin.2015.03.021.

Philippas, D., Koutelidakis, Y., & Leontitsis, A. (2015). Insights into European interbank network contagion. Managerial Finance, 41(8). doi: 10.1108/MF-03-2014-0095.

Published
2019-03-31
How to Cite
Legenzova, R., Gaigalienė, A., & Jurakovaitė, O. (2019). Evaluation of the post-crisis EU banking network connectedness in the global context. Oeconomia Copernicana, 10(1), 37-53. https://doi.org/10.24136/oc.2019.002
Section
Articles