Networks and banks’ failures. France in the classical gold standard era
Elisa Grandi, Angelo Riva, Rapahel HekimianThe paper studies the impact of networks on the banks’ resilience to banking crisis in France between 1880 and WWI through an analysis of banks’ interlocking directorates. We exploit the data on the 2 930 directors sitting on the boards of all the 126 French banks listed at the Paris Stock Exchange over the period and collected in the DFIH database from the French yearbooks of both the Official and unofficial Stock Exchange. The main question we address concerns the role of networks in predicting the banking crisis. More specifically, we try to assess if specific networks’ configurations among the banks are likely to prevent banking crisis or, if, on the contrary, conflict of interest that can be reconstituted through banks’ interlocking increases the risk of failure. We test this question in 1882 and 1889 French banking crisis, to see if network measures are positively correlated to banks’ resilience and market performance during the crises, compared with other features such as the banks’ main activity, size, age, and governance. At the same time, we investigate the behavior of the banks who failed during the period and estimate which bankers played a significant role in the insolvency of a bank. Eventually, investigate the network configuration after crises particularly to see if insolvent banks were sanctioned after a crisis by cutting their connections, in order to mitigate the conflict of interest of boards’ members.