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Core-Periphery Structure in the Overnight Money Market: Evidence from the e-MID Trading Platform

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  • Thomas Lux, Daniel Fricke

Abstract

We explore the network topology arising from a dataset of the overnight interbank transactions on the e-MID trading platform from January 1999 to December 2010. In order to shed light on the hierarchical structure of the banking system, we estimate different versions of a core-periphery model. Our main findings are: (1) A core-periphery structure provides a better fit for these interbank data than alternative network models, (2) the identified core is quite stable over time, consisting of roughly 28% of all banks before the global financial crisis (GFC) and 23% afterwards, (3) the majority of core banks can be classified as intermediaries, i.e. as banks both borrowing and lending money, (4) allowing for asymmetric `coreness’ with respect to lending and borrowing considerably improves the fit, and reveals more concentration in borrowing than lending activity of money center banks. During the financial crisis of 2008, the reduction of interbank lending was mainly due to core banks’ reducing their numbers of active outgoing links

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1759.

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Length: 60 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:kie:kieliw:1759

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Keywords: interbank market; network models; systemic risk; financial crisis;

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References

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  1. Cocco, João F. & Gomes, Francisco J. & Martins, Nuno C., 2009. "Lending relationships in the interbank market," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 24-48, January.
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  9. Iori, G. & Masi, G. D. & Precup, O. V. & Gabbi, G. & Caldarelli, G., 2005. "A network analysis of the Italian oversight money market," Working Papers 05/05, Department of Economics, City University London.
  10. Sheri Markose & Simone Giansante & Mateusz Gatkowski & Ali Rais Shaghaghi, 2010. "Too Interconnected To Fail: Financial Contagion and Systemic Risk In Network Model of CDS and Other Credit Enhancement Obligations of US Banks," Working Papers 033, COMISEF.
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Citations

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Cited by:
  1. Daniel Fricke & Thomas Lux, 2013. "On the Distribution of Links in the Interbank Network: Evidence from the e-Mid Overnight Money Market," Kiel Working Papers 1819, Kiel Institute for the World Economy.
  2. Daniel Fricke & Karl Finger & Thomas Lux, 2013. "On Assortative and Disassortative Mixing Scale-Free Networks: The Case of Interbank Credit Networks," Kiel Working Papers 1830, Kiel Institute for the World Economy.
  3. Daniel Fricke, 2012. "Trading Strategies in the Overnight Money Market: Correlations and Clustering on the e-MID Trading Platform," Kiel Working Papers 1766, Kiel Institute for the World Economy.
  4. Sheri M. Markose, 2012. "Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax," IMF Working Papers 12/282, International Monetary Fund.
  5. Pritsker, Matthew, 2013. "Knightian uncertainty and interbank lending," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 85-105.
  6. Vaclav Hausenblas & Ivana Kubicova & Jitka Lesanovska, 2012. "Contagion Risk in the Czech Financial System: A Network Analysis and Simulation Approach," Working Papers 2012/14, Czech National Bank, Research Department.
  7. Lee, Seung Hwan, 2013. "Systemic liquidity shortages and interbank network structures," Journal of Financial Stability, Elsevier, vol. 9(1), pages 1-12.
  8. Matthias Raddant, 2012. "Structure in the Italian Overnight Loan Market," Kiel Working Papers 1772, Kiel Institute for the World Economy.
  9. Fariba Karimi & Matthias Raddant, 2013. "Cascades in real interbank markets," Papers 1310.1634, arXiv.org.
  10. Mattia Montagna & Thomas Lux, 2013. "Hubs and resilience: towards more realistic models of the interbank markets," Kiel Working Papers 1826, Kiel Institute for the World Economy.
  11. Leonardo Bargigli & Giovanni Di Iasio & Luigi Infante & Fabrizio Lillo & Federico Pierobon, 2013. "The Multiplex Structure of Interbank Networks," Working Papers - Economics wp2013_26.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  12. Iman van Lelyveld & Daan in 't Veld, 2012. "Finding the core: Network structure in interbank markets," DNB Working Papers 348, Netherlands Central Bank, Research Department.

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