Shock transmission through the global banking network (Galina Hale, Tümer Kapan, Camelia Minoiu, VOX)

Since the Global Crisis, cross-border lending among banks and its role in the transmission of financial shocks have gained a lot of attention. This column describes evidence from direct and indirect lending exposures among a large number of banks. The findings show that a larger number of exposures to banks in countries experiencing a systemic banking crisis reduces profitability and the supply of new credit. Both direct and indirect connections have economically significant effects, supporting the notion that interconnected systems are prone to shock transmission.

http://voxeu.org/article/global-banking-network-s-role-shock-transmission