Does direction of the transmission of bank risk matter? An application to the Chilean banking sector

Abstract

This paper studies the transmission of bank risk in the Chilean banking sector by focusing on the direction of the transmission. By using a Spatial Autoregressive Panel data model, our main findings indicate the following. First, banks which maintain a high (low) proportion of interbank credits transmit risk to banks that maintain a low (high) proportion of interbank credits. Second, while small banks transmit risk to banks which are of similar size, large banks transmit risk to the whole banking sector. Finally, banks whose main clients belong to the financial establishments, insurance, real state, and services economic activity transmit risk to the rest of banks.