Previous research over interbank network connectedness has been found to present large regional differences. Focused on the UK interbank networks, Dr. Gu presents her research delving into the real implications of interbank network relationships over the influences on bank’s credit supplies to the cooperate sector.

Prof. Andy Liu gave a welcome speech

The influences on UK banks’ credit supply to the cooperate sector is studied from two perspectives, the UK interbank network relationships and the time periods before and during COVID. The interbank network relations are also demonstrated from two aspects, the corporate structure reflecting the cooperation centrality and the cooperates’ community relations presented in the form of cooperation clusters. Thus, the key focus of the study is to reveal how the exposure in interbank network would influence banking decisions for bank credits in mainly non-financial bodies.

Using a unique large exposure dataset of UK banking sector, the leading relations of UK domestic and global bank networks are captured. With time panel covering 2014 to 2021, it is divided as pre-COVID period from 2014 to 2020, and during COVID from 2020 to 2021.

Dr. Gu’s research has promptly revealed that the number of both lenders and borrowers in the banking market has increased regardless of COVID. However, the lower average exposure of the banks suggested liquidity hoarding in the beginning of COVID outbreak, the situation of which is later improved later in 2020.

Dr Gu's online lecture

Then the influences on load decision-making from the position of the banks in the interbank network, considering banks’ centrality, belonging clusters, bank characteristics, and firm characteristics, are studied. It is found that a bank having more direct exposures and belonging to a larger cluster would be more likely to lend to non-financial firms. In general, leading banks with more exposure or being central among interbank networks tend to lend to the real sector.

Dr. Gu further investigated into the factors influencing risks considered in the lending decisions made by banks. While larger banks hold stronger risk sharing, smaller banks are insured by connected counterparties. For different borrowers, less information asymmetry is genuinely appreciated while larger banks take higher risks. Then, considering the global effect of interbank networks, the global effects are still strongly positive and core banks and banks in larger clusters are more fund of lending to the corporate sector. It is found that COVID has concentrated lending and borrowing activities among banking network communities. Core banks have been hoarding liquidity during COVID by adjusting lending to the real sector and transferring liquidity to other banks to support their lending to non-financial firms. This study further confirmed above results by the shock of COVID and further identified that COVID is a negative shock causing structural reduction in lending to the corporate sector.

the audience on-site

Upon presenting her research, indicative and detailed discussions are held. Prof. Andy Liu appraised that this research would form better implication to current hot cases like the Silicon Valley Bank. Prof. Huang Tao proposed a discussion for considering the influence of bank size in determining the weights. The discussions wrapped up the seminar.