Congelamiento del mercado del crédito y redes bancarias : banking networks in credit freezes

Abstract

We develop a model to study the impact of banking networks on the probability of credit freezes. Under the defined framework, we untangle the question about how bad economic outcomes in one region can affect the willingness of the financial system to provide funding to operating firms. We also we use it to understand some of the policies implemented by the authority during a global crisis. The model presented consists of two independent regions connected by cross holding deposits; banks use these deposits to insure against regional shocks. In each region, we have interdependent operating firms, whose success depends on macroeconomic conditions and on the ability of other firms to find funding. In our economy, two types of credit freezes may arise, an efficient one and an inefficient one. The latter is caused by the inability of financial firms to coordinate with one another. The main result of this thesis, gives us conditions under which banking networks affect the probability of an inefficient credit freeze. We also propose two channels under which this relationship can operate.