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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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  13. George Sheldon & Martin Maurer, 1998. "Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
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Citations

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Cited by:
  1. 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.
  2. Vaclav Hausenblas & Ivana Kubicova & Jitka Lesanovska, 2012. "Contagion Risk in the Czech Financial System: A Network Analysis and Simulation Approach," Working Papers, Czech National Bank, Research Department 2012/14, Czech National Bank, Research Department.
  3. Lee, Seung Hwan, 2013. "Systemic liquidity shortages and interbank network structures," Journal of Financial Stability, Elsevier, Elsevier, vol. 9(1), pages 1-12.
  4. Pritsker, Matthew, 2013. "Knightian uncertainty and interbank lending," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 22(1), pages 85-105.
  5. carlos León & Ron J. Berndsen, 2013. "Modular scale-free architecture of Colombian financial networks: Evidence and challenges with financial stability in view," Borradores de Economia 799, Banco de la Republica de Colombia.
  6. Leonardo Bargigli & Giovanni di Iasio & Luigi Infante & Fabrizio Lillo & Federico Pierobon, 2013. "The multiplex structure of interbank networks," Papers 1311.4798, arXiv.org.
  7. Fariba Karimi & Matthias Raddant, 2013. "Cascades in real interbank markets," Kiel Working Papers 1872, Kiel Institute for the World Economy.
  8. Raddant, Matthias, 2014. "Structure in the Italian overnight loan market," Journal of International Money and Finance, Elsevier, Elsevier, vol. 41(C), pages 197-213.
  9. Karl Finger & Daniel Fricke & Thomas Lux, 2013. "Network analysis of the e-MID overnight money market: the informational value of different aggregation levels for intrinsic dynamic processes," Computational Management Science, Springer, Springer, vol. 10(2), pages 187-211, June.
  10. 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.
  11. Fricke, Daniel, 2012. "Trading strategies in the overnight money market: Correlations and clustering on the e-MID trading platform," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 391(24), pages 6528-6542.
  12. 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.
  13. Iman van Lelyveld & Daan in 't Veld, 2012. "Finding the core: Network structure in interbank markets," DNB Working Papers, Netherlands Central Bank, Research Department 348, Netherlands Central Bank, Research Department.
  14. Vinko Zlati\'c & Giampaolo Gabbi & Hrvoje Abraham, 2014. "Reduction of systemic risk by means of Pigouvian taxation," Papers 1406.5817, arXiv.org.
  15. Carlos León & Jhonatan Pérez & Luc Renneboog, 2014. "A multi-layer network of the sovereign securities market," Borradores de Economia 840, Banco de la Republica de Colombia.
  16. Sheri M. Markose, 2012. "Systemic Risk from Global Financial Derivatives," IMF Working Papers 12/282, International Monetary Fund.

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