Abstract

This paper examines how the interbank network structure influences banks’ credit supply to the real economy. By detecting the dynamic structure of the UK interbank networks based on the quarterly evolutions of bilateral exposures from 2014 to 2021, we find evidence of both an effect of risk sharing through the interbank core-periphery structure and an effect of liquidity insurance within interbank lending communities. Core banks with high global centrality and banks in a larger community tend to lend more to non-financial firms. The effect of global centrality is still significant after controlling for the local effects including local centrality and community size. The COVID-19 crisis is an exogenous shock to the real economy and to the interbank networks. By concentrating on the banks that are not highly impacted by COVID with less exposure to COVID-impacted regions and industries prior to the crisis, we find that banks that are not directly connected to the COVID-impacted banks in the interbank network gain centrality and community size compared to the banks that are directly connected to the COVID-impacted banks. Consequently, higher centrality and community size lead to higher credit supply during COVID.

About the Speaker

Xian Gu is an Associate Professor in Finance at Durham University in the UK. Her research interests are corporate finance, financial intermediation, and law and finance. She has published academic papers in Journal of International Economics, Annual Review of Financial Economics, Journal of Corporate Finance, among others. Her working papers have been presented at conferences including Western Finance Association (WFA) Annual Meetings, American Finance Association (AFA) Annual Meetings, etc. and have won the Best Paper Awards at AsianFA (2019); CFRC (2019); CICF (2021); CFRC (2021).