Bank Complexity: Is Size Everything?, Accessible Data
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In the figures for this note, we represent the organizational structure of each bank as a network of its subsidiaries. Although the structures vary across banks, they do share common characteristics that make them all recognizable as organizational structures. Each network is a composed of multiple clusters, or communities of firms. A cluster is composed of a hub (a single central node with many connections) and other nodes with very few connections--usually a single connection linking it to the hub.
As a physical analog to the appearance of our networks, consider holding a bunch of grapes, still on the stem. The point where multiple stems meet is a hub. The stems connecting hubs will be thicker and more important for holding the entire bunch together. If our goal was to divide a large bunch into smaller portions, we would naturally search for a point where two large stems meet and break it apart. In most of our figures, this most critical point for each bank network is its top-holder--its financial holding company (FHC).
Figure 1: Structural Comparison
Figure 1 is a structural comparison of the networks of Citigroup and Goldman Sachs. On the left in panel A, Citigroup's network of 500 nodes is composed of five main clusters of nodes. Citigroup's FHC is itself a hub within a small cluster and three important edges extend from it to other hubs. Two of these edges, one extending to the left and one extending upward, terminate at the hubs of medium sized clusters. The third connection, extending downward passes through a hub of a medium sized cluster and before terminating at the hub of the largest cluster in the network. On the right in panel B, Goldman Sachs's network of 700 nodes is composed of six main clusters. The FHC in this structure is a hub of the largest cluster--containing roughly half the nodes in the network--and nearly every node in this cluster is connected directly to the FHC. The hubs of the other five clusters are directly connected to the FHC.
Figure 2: Roles in Positions
Figure 2 highlights how similar structural features across banks may imply similar preferences. Panels A and C on the left show State Street's network and panels B and D on the right show that of Bank of New York Mellon. The common feature in panels A and B is the role of the commercial bank as an intermediary between the FHC and an Edge corporation. Panels C and D highlight the role of this feature as a conduit between each bank's domestic and foreign activities.
Figure 3: Merger and Integration
Figure 3 follows the acquisition of JP Morgan & Company by Chase Manhattan Bank to form JP Morgan Chase & Company. In panel A, the network of JP Morgan & Company is on the left and that of Chase Manhattan Bank is on the right. Both networks have six main clusters that are connected sequentially along a line. Panel B, the quarter after the acquisition, shows that the two previous networks are now connected. It appears as if Chase's network has been crossed over JP Morgan's so that one of their central clusters is now overlapping the other, and the two end-clusters of Chase have been tied together to form a ring. The network in panel C retains the same ring structure as panel B, but the number of nodes has been reduced significantly from 1,138 to 534 and the nodes that remain from the JP Morgan are now mixed thoroughly throughout the ring rather simply overlapping on a single cluster.