Bank–client cross-ownership of bank stocks: A network analysis

Abstract

We examine the effects of banks' client stock ownership structure on their governance mechanism, risk taking, and systemic risk in the financial system. We apply a dyadic level of analysis to provide new insights into the relevance of such cross-ownership as an effective monitoring mechanism and as a source of interconnectedness between and among financial institutions. Our empirical results indicate that bank–client cross-ownership of bank stocks is negatively associated with the riskiness of bank holding companies and positively associated with systemic risk. Moreover, the effects of such cross-ownership on systemic risk are stronger in times of a financial crisis.