Computational Economics

, Volume 47, Issue 1, pp 67–96 | Cite as

Bank Capital Shock Propagation via Syndicated Interconnectedness

  • Makoto Nirei
  • Vladyslav Sushko
  • Julián Caballero


Loan syndication increases bank interconnectedness through co-lending relationships. We study the financial stability implications of such dependency on syndicate partners in the presence of shocks to banks’ capital. Model simulations in a network setting show that such shocks can produce rare events in this market when banks have shared loan exposures while also relying on a common risk management tool such as value-at-risk (VaR). This is because a withdrawal of a bank from a syndicate can cause ripple effects through the market, as the loan arranger scrambles to commit more of its own funds by also pulling back from other syndicates or has to dissolve the syndicate it had arranged. However, simulations also show that the core-periphery structure observed in the empirical network may reduce the probability of such contagion. In addition, simulations with tighter VaR constraints show banks taking on less risk ex-ante.


Syndicated lending Systemic risk Network externalities  Value at risk Bank capital shocks Rare event risk 



We are grateful for the generous support of the BIS Research Fellowship Program. We also thank Tobias Adrian, Douglas Araujo, Dietrich Domanski, Ingo Fender, Blaise Gadanecz, Neeltje van Horen, Francisco Nadal de Simone, Iman van Lelyveld, Goetz von Peter, and the participants of the BIS Monetary and Economic Department Seminar (Basel, Switzerland, April 2013), the Conference on Network Approaches to Interbank Markets (Castellón, Spain, May 2013), and the Banque de France–ACPR–SoFiE conference on Systemic Risk and Financial Regulation (Paris, France, July 2014) for their comments and suggestions. We thank Sergei Grouchko and Michela Scatigna for excellent research support. Any views presented here are those of the authors and do not necessarily reflect those of the BIS or IADB.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Makoto Nirei
    • 1
  • Vladyslav Sushko
    • 2
  • Julián Caballero
    • 3
  1. 1.Institute of Innovation ResearchHitotsubashi UniversityKunitachiJapan
  2. 2.Bank for International SettlementsBaselSwitzerland
  3. 3.Inter-American Development BankWashingtonUSA

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