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Do market-based networks reflect true exposures between banks?

Author

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  • Craig, Ben
  • Karamysheva, Madina
  • Salakhova, Dilyara

Abstract

We compare networks constructed using five commonly used methods and publicly available daily market data to networks based on reported exposures along several dimensions of the balance sheet, i.e., loans, bonds, equity. Our findings suggest that while the global network structure remains stable, individual exposures are more dynamic. The main message from the regression analysis is that the market-based networks do their job relatively well, however, various market-based networks capture different types of exposures. All the measures reflect common portfolios of bonds and loans. Equity-based measures match better direct and indirect equity, while credit-risk measures capture direct bonds. None of the measures robustly identify direct interbank lending. JEL Classification: G20, L14, D85, C63

Suggested Citation

  • Craig, Ben & Karamysheva, Madina & Salakhova, Dilyara, 2023. "Do market-based networks reflect true exposures between banks?," Working Paper Series 2867, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20232867
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    banking regulation; interconnections; market-based networks; true-exposure networks; financial networks;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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