Cross-border credit networks, banking risk contagion and suppression effects

Abstract

From the perspective of risk contagion, it is difficult to balance the benefits and costs of banking globalization. We use data on cross-border syndicated loans intended to build heterogeneous credit networks among banking sectors in various countries to explore the introduction of banking risks into the network. Via social network analysis (SNA), we find that the global credit network has phased characteristics, and it is a source of exposure to global banking risks. However, the more important network position, that is, the greater centrality, identified shows that the banking industry is more stable. To explain these findings, we present and estimate the banking risk contagion model and the suppression effect model of contagion. Evidence suggests that the international credit network is the channel of risk contagion, and the long-term loan network and nonfinancial borrower network have a stronger contagion effect. Exogenous banking supervision and network endogenous closeness centrality can inhibit risk contagion. From a policy perspective, these findings indicate the need to supervise high-risk cross-border loans and maintain independence in the international credit network. Data Availability StatementThe data that support the findings of this study are available from the corresponding author, [Heng Zhao, email: zhao0501@mail.dlut.edu.cn], upon reasonable request.