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The topology of the interbank market: developments in Italy since 1990

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  • Michele Manna

    ()
    (Bank of Italy)

  • Carmela Iazzetta

    ()
    (Bank of Italy)

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    Abstract

    When a bank defaults or stops trading in the interbank market, both a liquidity shortage in the market itself and mounting trading losses should be anticipated. To gain more insight into the way a liquidity crisis spreads, we apply network topology techniques to monthly data on deposits exchanged by Italian banks, from 1990 to 2008. Our research yields three main results: first, only a few banks are today pivotal in the redistribution of liquidity across the system, while banks close to, but outside this core circle, weigh less than they used to; secondly, the halt in operations in a second set of banks may cut off some of their counterparts from the rest of the network, with increasingly less negligible effects; finally, only 2-3 banks out of the 10 we identify as most interconnected within the network are currently also among the top 10 banks by volume of traded deposits.

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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td09/td711_09/td_711_09_en/en_tema_711.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 711.

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    Date of creation: May 2009
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    Handle: RePEc:bdi:wptemi:td_711_09

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    Web page: http://www.bancaditalia.it
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    Related research

    Keywords: interbank market; topology; liquidity crisis;

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    Cited by:
    1. Fabio Caccioli & Thomas A. Catanach & J. Doyne Farmer, 2011. "Heterogeneity, correlations and financial contagion," Papers 1109.1213, arXiv.org.
    2. Giuseppe Cappelletti & Antonio De Socio & Giovanni Guazzarotti & Enrico Mallucci, 2011. "The impact of the financial crisis on inter-bank funding: evidence from Italian balance sheet data," Questioni di Economia e Finanza (Occasional Papers) 95, Bank of Italy, Economic Research and International Relations Area.
    3. Gabbi, G. & Germano, G. & Hatzopoulos, V. & Iori, G. & Politi, M., 2012. "Market microstructure, bank's behaviour and interbank spreads," Working Papers 12/06, Department of Economics, City University London.
    4. Filippo Vergara Caffarelli, 2009. "Networks with decreasing returns to linking," Temi di discussione (Economic working papers) 734, Bank of Italy, Economic Research and International Relations Area.
    5. Iori, G. & Kapar, B. & Olmo, J., 2012. "The Cross-Section of Interbank Rates: A Nonparametric Empirical Investigation," Working Papers 12/03, Department of Economics, City University London.

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