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Mapping change in the federal funds market

Author

Listed:
  • Morten L. Bech
  • Carl T. Bergstrom
  • Rod Garratt
  • Martin Rosvall

Abstract

We use an information-theoretic approach to describe changes in lending relationships between federal funds market participants around the time of the Lehman Brothers failure. Unlike previous work that conducts maximum-likelihood estimation on undirected networks, our analysis distinguishes between borrowers and lenders and looks for broader lending relationships (multibank lending cycles) that extend beyond the immediate counterparties. We find that significant changes in lending patterns emerge following implementation of the Interest on Reserves policy by the Federal Reserve on October 9, 2008.

Suggested Citation

  • Morten L. Bech & Carl T. Bergstrom & Rod Garratt & Martin Rosvall, 2011. "Mapping change in the federal funds market," Staff Reports 507, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:507
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    References listed on IDEAS

    as
    1. Wetherilt, Anne & Zimmerman, Peter & Soramaki, Kimmo, 2010. "The sterling unsecured loan market during 2006-08: insights from network theory," Bank of England working papers 398, Bank of England.
    2. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    3. Copic Jernej & Jackson Matthew O. & Kirman Alan, 2009. "Identifying Community Structures from Network Data via Maximum Likelihood Methods," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-40, September.
    4. Bech, Morten L. & Atalay, Enghin, 2010. "The topology of the federal funds market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5223-5246.
    5. Martin Rosvall & Carl T Bergstrom, 2011. "Multilevel Compression of Random Walks on Networks Reveals Hierarchical Organization in Large Integrated Systems," PLOS ONE, Public Library of Science, vol. 6(4), pages 1-10, April.
    6. Craig, Ben & von Peter, Goetz, 2014. "Interbank tiering and money center banks," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 322-347.
    7. Morten L. Bech & Tara N. Rice, 2009. "Profits and balance sheet developments at U.S. commercial banks in 2008," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 95(6).
    8. Bartolini, Leonardo & Hilton, Spence & McAndrews, James J., 2010. "Settlement delays in the money market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 934-945, May.
    9. Adam B. Ashcraft & Darrell Duffie, 2007. "Systemic Illiquidity in the Federal Funds Market," American Economic Review, American Economic Association, vol. 97(2), pages 221-225, May.
    10. James Chapman & Yinan Zhang, 2010. "Estimating the Structure of the Payment Network in the LVTS: An Application of Estimating Communities in Network Data," Staff Working Papers 10-13, Bank of Canada.
    11. Martin Rosvall & Carl T Bergstrom, 2010. "Mapping Change in Large Networks," PLOS ONE, Public Library of Science, vol. 5(1), pages 1-7, January.
    12. repec:fip:fedgrb:y:2009:x:1 is not listed on IDEAS
    13. Garratt, Rodney & Mahadeva, Lavan & Svirydzenka, Katsiaryna, 2011. "Mapping systemic risk in the international banking network," Bank of England working papers 413, Bank of England.
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    Cited by:

    1. Olivier Armantier & Adam Copeland, 2012. "Assessing the quality of “Furfine-based” algorithms," Staff Reports 575, Federal Reserve Bank of New York.
    2. Raddant, Matthias, 2014. "Structure in the Italian overnight loan market," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 197-213.
    3. Ronald Heijmans & Richard Heuver & Clement Levallois & Iman van Lelyveld, 2014. "Dynamic visualization of large transaction networks: the daily Dutch overnight money market," DNB Working Papers 418, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    Federal funds market (United States); Federal Reserve System; Bank loans; Financial crises;
    All these keywords.

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