- Interbank network and banks‘ credit supply
Bank of England
This paper examines how the interbank network structure influences banks’ credit supply to the real economy. Using the dynamic UK interbank networks based on the quarterly evolutions of bilateral exposures from 2014 to 2021, we find evidence of both risk-sharing effect through the interbank core-periphery structure and liquidity-insurance effect 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. During the Covid-19 pandemic, the effect of risk sharing is mitigated whereas the effect of community lending is strengthened.