Time: 1.20 - 2.20pm Venue: Room 3.21 Old Building
Speaker: Co-Pierre Georg (University of Cape Town, Economic Research Southern Africa, Deutsche Bundesbank)
Seminar Title: The Real Effect of Financial Networks
Abstract:
The Real Effects of Financial Networks
Christian Bittner (Bundesbank), Falko Fecht (Frankfurt School) and Co-Pierre Georg (UCT & Bundesbank)
Does the direct and indirect access to private interbank liquidity enable banks to extend credit provision to non-financial firms during crises? Does this liquidity insurance also have real effects, e.g. foster longer-term R&D investments? We use a unique data set that combines bank-to-bank credit information with bank-to-firm data on credit exposures and detailed balance sheet information at the firm and bank level for the universe of German banks. Controlling for observed and unobserved firm and bank heterogeneity we show in a difference-in-differences approach that, after the sovereign debt crisis, banks more central in the interbank network--and in particular those that became more central--form more new credit relations with non-financial firms, cut fewer credit relations, and lend larger volumes, especially to firms with more intangible assets. The effect is economically significant: a 10% increase in a bank's indirect access to private liquidity from the pre- to the post-shock period implies provision of 5% more loans to corporate borrowers. In order to establish causality we focus on changes to a bank's centrality resulting from changes in their neighbors' network.
