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Developments in a Cross-Border Bank Exposure "Network"

September 2007
Masazumi Hattori*1
Yuko Suda*2

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Abstract

In this paper we explore the developments in the cross-border bank exposures using the BIS International Banking Statistics. To this end, we treat the web of the cross-border bank exposures as a "network" and investigate the characteristics of the network topology, and compute various statistical measures for the network topology. We find that the network of cross-border bank exposure has become more tightly connected over time. The network now has higher connectivity, a shorter average path length, a higher average degree, and a higher clustering coefficient than in the past. In particular, we observe that such tendency has never been hampered by any disturbances or crises in international financial markets (such as the East Asia currency crisis in 1997 or the LTCM near-default event in 1998). We see both costs and benefits from these developments in the cross-border bank exposures. On the one hand, systemic risk in international financial markets is likely to increase because of the more direct and more widely spreading spillover effects of a crisis in one country once it occurs. On the other hand, efficiency of international financial markets is expected to further improve in terms of capital and risk allocation.

Key words:
BIS International Banking Statistics, network, topological statistical measures, systemic risk

JEL Classification code:
F23 F34 F36 G15 G21

In the preparation of this paper, we received insightful comments from the participants of a BIS CGFS Workshop "Research on Global Financial Stability: the Use of BIS International Financial Statistics", Bank of England "Selected Economists' Research Forum: Modelling the Financial Sector", Bank Indonesia "The 5th International Seminar on Financial Stability: Financial Sector Deepening and Financial Stability - Benefits and Challenges" and some staff members of the Financial Systems and Bank Examination Department, Bank of Japan. The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Bank of Japan. Any errors or omissions are the responsibility of the authors. The corresponding author is Masazumi Hattori.

  • *1 Financial Systems and Bank Examination Department (currently, Institute for Monetary and Economic Studies), Bank of Japan
    E-mail: masazumi.hattori@boj.or.jp
  • *2 Financial Systems and Bank Examination Department, Bank of Japan
    E-mail: yuuko.suda@boj.or.jp

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