Driver Countries in Global Banking Network.

Farzaneh Atyabi,Olha Buchel,Leila Hedayatifar

doi:10.3390/e22080810

Farzaneh Atyabi, Olha Buchel + Show 1 more

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https://doi.org/10.3390/e22080810

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Abstract

We analyze the network of cross-border bank lending connections among countries from 1977 to 2018. The network includes core countries that lend money and peripheral countries that borrow money from core countries. In nowadays highly connected banking network, financial crisis that start from a country can spread to other countries very fast and cause global affects. We use principal component analysis (PCA) to find the influential lending (core) countries in this network over the years and clusters of borrowing (peripheral) countries related to these impactful core countries. We find three clusters of peripheral countries, with some constant and some changing members over time. This can be a sign of changes in the financial or political interactions among countries. The changes in the role of core countries and how these roles get affected by the important financial crisis in the past decades is investigated. Among 31 of core countries, 7 countries have a partially or constantly important role in the network including France, United Kingdom, United States, Japan, Germany, Chinese Taipei and Switzerland.

Highlights

The global financial-economic system with various economic channels between countries is a highly complex system with intricate inter-dependencies
Since changes in cross-border bank lending strategies, constructed by core countries, play a very important role in shaping economic fluctuations and lead to spillovers of financial conditions to other advanced and emerging market economies [24,25,26], in this paper we focus on this influential financial instrument
It has been shown that while a higher density of connections in the financial network increases shock repercussions in the whole system, it reduces the risk of contagion by absorbing consequences of shocks and share it with more agents in the financial network [48,49,50]

Summary

Introduction

The global financial-economic system with various economic channels between countries is a highly complex system with intricate inter-dependencies. Cross-border bank lending activities have experienced remarkable growth over the past three decades [1,2,3]. Internationally connected banking system plays an important role in the global financial architecture [4]. While connecting to the global banking system produces more financial opportunities for countries, the number of connections and structure of the network can contribute to the transmission of financial shocks and impose significant constraints on the dynamics of the crisis spreading [5,6,7,8]. Understanding the topology of the network of cross-border financial flows and defining its influential components over time provides a better assessment of financial stability and systemic risk [12]. Studying the amount of influence of lending countries globally and the group of borrower countries that interact mostly with some specific lenders is crucial

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