Global Banking as a Complex Political Economy

Abstract

Power in global finance originates from the ability to attract and supply capital. This paper presents a complex network analysis of the global banking system from 1999-2009. It uncovers important determinants of the patterns of integration in global banking. The central argument is that both country-level attributes and structural processes drive network formation, in different ways: country-level political and economic attributes whether a national banking system attracts ties from foreign firms, while structural processes determine the extent to which a country's banking sector becomes prominent globally. I test these hypotheses using Exponential Random Graph models, and show how inferences from complex network models are different than those which would be made in typical linear regressions. The results strongly suggest that some domestic political and economic variables influence lower-level -- but not higher-level -- dependencies in the global banking system, while structural processes are important at all levels. In particular, preferential attachment reinforces the structure of the global banking system. This suggests that analyses which do not take system structure into account are likely to yield false inferences.