Bank Relationships, Business Cycles, and Financial Crises

47 Pages Posted: 29 Aug 2011 Last revised: 5 Jun 2022

See all articles by Galina Hale

Galina Hale

University of California, Santa Cruz

Date Written: August 2011

Abstract

The importance of information asymmetries in the capital markets is commonly accepted as one of the main reasons for home bias in investment. We posit that effects of such asymmetries may be reduced through relationships between banks established through bank-to-bank lending and provide evidence to support this claim. To analyze dynamics of formation of such relationships during 1980-2009 time period, we construct a global banking network of 7938 banking institutions from 141 countries. We find that recessions and banking crises tend to have negative effects on the formation of new connections and that these effects are not the same for all countries or all banks. We also find that the global financial crisis of 2008-09 had a large negative impact on the formation of new relationships in the global banking network, especially by large banks that have been previously immune to effects of banking crises and recessions.

Suggested Citation

Hale, Galina, Bank Relationships, Business Cycles, and Financial Crises (August 2011). NBER Working Paper No. w17356, Available at SSRN: https://ssrn.com/abstract=1918685

Galina Hale (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

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