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.
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Find related papers by JEL classification: D4 - Microeconomics - - Market Structure and Pricing 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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