<p>This questions is about how to model the growth of a bond market. Consider a large set of banks, such as HSBC, BNP Paribas, etc, that can enter into syndication (i.e. join together in small groups) to issue (in this case green) bonds. The money is for a developer who then builds e.g. onshore wind farms, and eventually repays the banks with interest.</p>
<p>Do banks influence each other in some way? So, given some weighted network of influences between banks (a sort of dependency graph), which one can acquire via some method such as <a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0015032" rel="nofollow noreferrer">partial correlation</a>, we can model the growth of a bond market as &quot;<a href="https://en.wikipedia.org/wiki/Compartmental_models_in_epidemiology" rel="nofollow noreferrer">the spread of infection</a>&quot;, like a bond buying &quot;craze&quot;? An alternative is <a href="https://en.wikipedia.org/wiki/Preferential_attachment" rel="nofollow noreferrer">preferential attachment</a>, where <a href="https://www.cambridge.org/core/journals/network-science/article/preferential-attachment-hypergraph-with-high-modularity/C0FE5B536E02817ADCEA781532249E8C" rel="nofollow noreferrer">new banking syndicates</a> are more likely to form with existing banks that have issued a lot of debt the past.</p>
<p>So, in theory, once some bank I am influenced by gets involved in a banking syndicate and issues a bond, I then am more likely in the future to do the same, relative to another bank not so well surrounded by bond-issuing banks.</p>
<p>Is this a reasonable way to think about how things work, to some extent, in for example the context of the economics of green debt?</p>

CC BY-SA 4.0
2023-07-01T18:35:44.780Z
Is this purely from a modelling perspective or out of interest how it works in real life? The latter, is a lot less complicated. Basically, if a company needs funding, they ask banks. Many treasuries have access to Bloomberg. So they look at functions like LEAG, determine what banks have the best track record, distribution, credibility cheap fees etc. As of now, your question is unclear to me. The developer building wind farms and banks are separate entities. The banks do not issue debt. The developer does. The bank just facilitates the debt issuance.
AKdemy
CC BY-SA 4.0
2023-07-02T00:11:35.577Z
From both perspectives I suppose. A group of banks is registered on Bloomberg having entered a syndicate, and I am interested in the question: does one banking syndicate form as a consequence of being "influenced" by another, so that an "epidemiological" model might work. I know it (the hypergraph of banking syndicates) has a power law degree distribution so preferential attachment of some sort is happening. I'm not sure spread of infection as a model will work as I don't think it will reproduce the power law we see in the degree distribution of the syndicate network.
apg
CC BY-SA 4.0
2023-07-02T08:36:44.367Z
I cannot help from a theoretical perspective. I do work in risk management at a fairly large bank, so I do know what makes us form a syndicate. It's really just demand from companies and the sheer size of certain offerings. It's just too risky to not spread it across several banks. If other banks form a syndicate or not has never played a role from what I can tell. The market for debt (need for financing) does grow and shrink though with the business cycle.
AKdemy
CC BY-SA 4.0
2023-07-02T08:42:25.820Z
If you enter the business as a bank and form syndicates is also largely a dependent on the business model. Many banks just don't do investment banking. Others come and go over time because management changes, the perspective of profitable opportunities changes...so I think preferential attachment is a tautology. As a bank you either want to be part of that business or not. If you want to, you are more likely to form a syndicate (because the others simply don't want to).
AKdemy
CC BY-SA 4.0
2023-07-05T13:20:23.010Z
Does any information or learning "diffuse" between banks during this process? So that being involved in previous deals would lead to greater ease in forming deals in the future?
apg
CC BY-SA 4.0
2023-07-05T17:08:48.533Z
Definity. banks do a lot of advertisement. If you issued bonds with us and we know you consistently issue bonds, we usually keep sending spread curves estimates to a benchmark on a regular basis. Mostly though, I think it's the companies who reach out because they either know the bank already or saw on Bloomberg LEAG (or something similar) that your bank is supposed to be a good match (covering the market, good volume, small fees etc). It might vary from region to region or bank to bank but ultimately the market is driven by the companies who need money (the developer) imho (or experience).
AKdemy
CC BY-SA 4.0
2023-07-05T19:47:13.553Z
Thank you. When you say "banks do a lot of advertisement", do you mean that other banks will see this information? Also, do you send the spread curves to other banks, or to developers you wish to encourage to become customers?
apg
CC BY-SA 4.0
2023-07-05T21:41:17.620Z
No, I don't think other banks see this info. It's directly sent to the company the bank wants to do business with.
AKdemy
CC BY-SA 4.0
2023-07-05T22:30:06.920Z
So basically, to a reasonable degree of certainty, information or learning does not diffuse between banks? That seems reasonable.
apg
<mathematical-economics><bonds><debt><markets><networks>
Do banks influence each other's decisions to issue bonds, via a dependency graph?
apg
# Do banks influence each other's decisions to issue bonds, via a dependency graph?

(Asked by: username_0 on 2023-07-01)

This questions is about how to model the growth of a bond market. Consider a large set of banks, such as HSBC, BNP Paribas, etc, that can enter into syndication (i.e. join together in small groups) to issue (in this case green) bonds. The money is for a developer who then builds e.g. onshore wind farms, and eventually repays the banks with interest.

Do banks influence each other in some way? So, given some weighted network of influences between banks (a sort of dependency graph), which one can acquire via some method such as [partial correlation](https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0015032), we can model the growth of a bond market as "[the spread of infection](https://en.wikipedia.org/wiki/Compartmental_models_in_epidemiology)", like a bond buying "craze"? An alternative is [preferential attachment](https://en.wikipedia.org/wiki/Preferential_attachment), where [new banking syndicates](https://www.cambridge.org/core/journals/network-science/article/preferential-attachment-hypergraph-with-high-modularity/C0FE5B536E02817ADCEA781532249E8C) are more likely to form with existing banks that have issued a lot of debt the past.

So, in theory, once some bank I am influenced by gets involved in a banking syndicate and issues a bond, I then am more likely in the future to do the same, relative to another bank not so well surrounded by bond-issuing banks.

Is this a reasonable way to think about how things work, to some extent, in for example the context of the economics of green debt?

**Tags:** mathematical-economics, bonds, debt, markets, networks
> **Comments:**
> **username_1**: Is this purely from a modelling perspective or out of interest how it works in real life? The latter, is a lot less complicated. Basically, if a company needs funding, they ask banks. Many treasuries have access to Bloomberg. So they look at functions like LEAG, determine what banks have the best track record, distribution, credibility cheap fees etc. As of now, your question is unclear to me. The developer building wind farms and banks are separate entities. The banks do not issue debt. The developer does. The bank just facilitates the debt issuance.  
> **username_0**: From both perspectives I suppose. A group of banks is registered on Bloomberg having entered a syndicate, and I am interested in the question: does one banking syndicate form as a consequence of being "influenced" by another, so that an "epidemiological" model might work. I know it (the hypergraph of banking syndicates) has a power law degree distribution so preferential attachment of some sort is happening. I'm not sure spread of infection as a model will work as I don't think it will reproduce the power law we see in the degree distribution of the syndicate network.  
> **username_1**: I cannot help from a theoretical perspective. I do work in risk management at a fairly large bank, so I do know what makes us form a syndicate. It's really just demand from companies and the sheer size of certain offerings. It's just too risky to not spread it across several banks. If other banks form a syndicate or not has never played a role from what I can tell. The market for debt (need for financing) does grow and shrink though with the business cycle.  
> **username_1**: If you enter the business as a bank and form syndicates is also largely a dependent on the business model. Many banks just don't do investment banking. Others come and go over time because management changes, the perspective of profitable opportunities changes...so I think preferential attachment is a tautology. As a bank you either want to be part of that business or not. If you want to, you are more likely to form a syndicate (because the others simply don't want to).  
> **username_0**: Does any information or learning "diffuse" between banks during this process? So that being involved in previous deals would lead to greater ease in forming deals in the future?  
> **username_1**: Definity. banks do a lot of advertisement. If you issued bonds with us and we know you consistently issue bonds, we usually keep sending spread curves estimates to a benchmark on a regular basis. Mostly though, I think it's the companies who reach out because they either know the bank already or saw on Bloomberg LEAG (or something similar) that your bank is supposed to be a good match (covering the market, good volume, small fees etc). It might vary from region to region or bank to bank but ultimately the market is driven by the companies who need money (the developer) imho (or experience).  
> **username_0**: Thank you. When you say "banks do a lot of advertisement", do you mean that other banks will see this information? Also, do you send the spread curves to other banks, or to developers you wish to encourage to become customers?  
> **username_1**: No, I don't think other banks see this info. It's directly sent to the company the bank wants to do business with.  
> **username_0**: So basically, to a reasonable degree of certainty, information or learning does not diffuse between banks? That seems reasonable.  

---

## 0 answers

