We analyse sub-custodian chains using a unique data set from a survey. Our key question is whether there is evidence for moral hazard in the delegation of asset safe-keeping to sub-custodians. Sub-custodian chains can be relatively long and frequently reach across several countries. The risk that securities are lost or the return to their owners delayed is not negligible. Our findings highlight that foreign or better informed banks are associated with shorter sub-custodian chains. Better capitalised banks seem to have longer, but safer sub-custodian chains. Our findings support the view that central securities depositories (CSDs) play a beneficial role in the management of sub-custodian structures. A CSD as the first sub-custodian reduces the country risk in sub-custodian structures. When we analyse the choice of a CSD, we find that better capitalised, larger and foreign banks are less likely to rely on CSDs as their first sub-custodian.

We analyze the relation between market-based credit risk interconnectedness among banks during the crisis and the associated balance sheet linkages via funding and securities holdings. For identification, we use a proprietary dataset that has the funding positions of banks at the bank-to-bank level for 2006–2013 in conjunction with investments of banks at the security level and the credit register from Germany. We find asymmetries both cross-sectionally and over time: when banks face difficulties to raise funding, the interbank lending affects market-based bank interconnectedness. Moreover, banks with investments in securities related to troubled classes have a higher credit risk interconnectedness. Overall, our results suggest that market-based measures of interdependence can serve well as risk monitoring tools in the absence of disaggregated high-frequency bank fundamental data.