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

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Listed:
  • Michele Manna

    (Bank of Italy)

  • Carmela Iazzetta

    (Bank of Italy)

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.

Suggested Citation

  • Michele Manna & Carmela Iazzetta, 2009. "The topology of the interbank market: developments in Italy since 1990," Temi di discussione (Economic working papers) 711, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_711_09
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    More about this item

    Keywords

    interbank market; topology; liquidity crisis;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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