Working Paper: NBER ID: w26034
Authors: Matthew S. Jaremski; David C. Wheelock
Abstract: Financial network structure is an important determinant of systemic risk. This paper examines how the U.S. interbank network evolved over a long and important period that included two key events: the founding of the Federal Reserve and the Great Depression. Banks established connections to correspondents that joined the Federal Reserve in cities with Fed offices, initially reducing overall network concentration. The network became even more focused on Fed cities during the Depression, as survival rates were higher for banks with more existing connections to Fed cities, and as survivors established new connections to those cities over time.
Keywords: interbank network; Federal Reserve; Great Depression; systemic risk
JEL Codes: G21; L14; N22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Founding of the Federal Reserve (E58) | Reduced overall network concentration (D85) |
| Great Depression (G01) | Increased focus on Federal Reserve cities in the network (R23) |
| Increased connections to Federal Reserve cities (N12) | Higher survival rates of banks (G21) |