A network analysis of global banking: 1978–2010

• We explore the properties of the global banking network during 1978–2010.
• Financial connectedness expands and contracts with the global cycle of capital flows.
• Contrary to popular belief, connectedness in 2007 was not unusually high.
• The severity of the 2008–2009 crisis has been driven by factors other than connectedness.
• The 2008–2009 crisis stands out as an unusually large perturbation to the network.

We analyze the global banking network using data on cross-border banking flows for 184 countries during 1978–2010. We find that the density of the global banking network defined by these flows is pro-cyclical, expanding and contracting with the global cycle of capital flows. We also find that country connectedness in the network tends to rise before banking and debt crises and to fall in their aftermath. Despite a historically unique build-up in aggregate flows prior to the global financial crisis, network density in 2007 was comparable to earlier peaks. This suggests that factors other than connectedness, such as the location of the initial shock to the core of the network, have contributed to the severity of the crisis. The global financial crisis stands out as an unusually large perturbation to the global banking network, with indicators of network density in 2008 reaching all-time lows.