Developments in a Cross-Border Bank Exposure "Network" ∗

Abstract

In this paper we explore the developments in cross-border bank exposures using the BIS international banking statistics. To this end, we treat the web of cross-border bank exposures as a “network”, investigate the characteristics of the network topology and compute various statistical measures for that topology. We find that the network of cross-border bank exposures has become more tightly connected over time. It 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 this tendency has never been hampered by any disturbances or crises in international financial markets (such as the East Asian currency crisis in 1997 or the LTCM near-default event in 1998). We see both costs and benefits from these developments in 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, the efficiency of international financial markets is expected to further improve in terms of capital and risk allocation. 1.

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