‘Strong’ correlation between leverage and financial connectivity – paper
Irish paper shows interconnected banks experience 'sharper contractions' in lending during shocks
A working paper published by the Central Bank of Ireland has shown there is a "strong" positive correlation between financial connectivity and leverage across countries, across financial institutions and across time.
Alessandro Barattieri, Laura Moretti and Vincenzo Quadrini develop a model where banks make risky investments outside the financial sector and, to reduce risks, sell some of the investments to other banks, in their paper Banks Interconnectivity and Leverage.
Their model predicts
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