Interbanking networks : towards a small financial world ?

This file is part of IDEAS, which uses RePEc data

Interbanking networks : towards a small financial world ?

Author Info

Sébastien Vivier-Lirimont () (EUREQua)

Abstract

In a standard stylised frame derived from Diamond Dybvig, banks operate within a network of debt contracts. Working in network enables banks to decentralize a Pareto Optimal allocation while it is impossible if banks operate in isolation. However, this outcome depends on the architecture of the network which itself depends on network participant number and on the cost structure. In a general frame with no cost, two network structures only decentralize first best outcome. The first structure highlights a Small World property as banks must be bound together at a network distance that equals at maximum 2. The second structure exhibits a strict regular topology. The rise in the number of competing banks leads to a more than proportional rise in interbank lending operations. In a frame with positive cost, we prove a single architecture both minimizes aggregate costs and decentralizes first best outcome. However, this topology has little chance to emerge as it exhibits unbalanced cost sharing among players. Aggregate cost efficiency is indeed not compatible with individual cost minimization.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v04046.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 34 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:mse:wpsorb:v04046

Contact details of provider:
Postal: 106 - 112 boulevard de l'H�pital, 75647 Paris cedex 13
Phone: 01 44 07 81 00
Fax: 01 44 07 81 09
Email:
Web page: http://mse.univ-paris1.fr/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Jacqueline Pradel).

Other versions of this item:

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-12-12 (All new papers)
NEP-FIN-2004-12-15 (Finance)
NEP-FIN-2004-12-12 (Finance)
NEP-NET-2004-12-12 (Network Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Jean-Charles Rochet & Jean Tirole, 1996. "Controlling risk in payment systems," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 832-869.
Other versions:
- Rochet, Jean-Charles & Tirole, Jean, 1996. "Controlling Risk in Payment Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 832-62, November. [Downloadable!] (restricted)
Sergio Currarini & Massimo Morelli, 2000. "Network Formation with Sequential Demands," Royal Holloway, University of London: Discussion Papers in Economics 99/2, Department of Economics, Royal Holloway University of London, revised Feb 2000. [Downloadable!]
Dirk Schoenmaker, 1992. "Institutional Separation between Supervisory and Monetary Agencies," FMG Special Papers sp52, Financial Markets Group. [Downloadable!] (restricted)
Garber, Peter M. & Grilli, Vittorio U., 1989. "Bank runs in open economies and the international transmission of panics," Journal of International Economics, Elsevier, vol. 27(1-2), pages 165-175, August. [Downloadable!] (restricted)
Other versions:
- Garber, P.M. & Grilli, V.U., 1988. "Bank Runs In Open Economies And The International Transmission Of Panics," RCER Working Papers 122, University of Rochester - Center for Economic Research (RCER).
- Peter M. Garber & Vittorio U. Grilli, 1988. "Bank Runs in Open Economies and The International Transmission of Panics," NBER Working Papers 2764, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Garber, P.M. & Grilli, V., 1988. "Bank Runs In Open Economies And The International Transmission Of Panics," Papers 552, Yale - Economic Growth Center.
Yehning Chen, 1999. "Banking Panics: The Role of the First-Come, First-Served Rule and Information Externalities," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 946-968, October. [Downloadable!] (restricted)
Sanjeev Goyal & Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Tinbergen Institute Discussion Papers 00-092/1, Tinbergen Institute. [Downloadable!]
Other versions:
- Goyal, S. & Joshi, S., 1999. "Networks for Collaboration in Oligopoly," Papers 9952/a, Erasmus University of Rotterdam - Econometric Institute.
- S. Goyal & S. Joshi, 1999. "Networks of collaboration in oligopoly," Econometric Institute Report 175, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
- Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, vol. 43(1), pages 57-85, April. [Downloadable!] (restricted)
Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Econometric Society World Congress 2000 Contributed Papers 0623, Econometric Society. [Downloadable!]
Temzelides, Theodosios, 1997. "Evolution, coordination, and banking panics," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 163-183, September. [Downloadable!] (restricted)
Other versions:
- Theodosios Temzelides, 1995. "Evolution, coordination, and banking panics," Working Papers 95-27, Federal Reserve Bank of Philadelphia.
- Ted Temzelides, 1995. "Evolution, Coordination, and Banking Panics," Finance 9511002, EconWPA. [Downloadable!]
Jackson, Matthew O. & Watts, Alison, 2002. "The Evolution of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 106(2), pages 265-295, October. [Downloadable!] (restricted)
Other versions:
- Jackson, Matthew O., 1998. "The Evolution of Social and Economic Networks," Working Papers 1044, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements. [Downloadable!]
Jackson, Matthew O. & Watts, Alison, 2002. "On the formation of interaction networks in social coordination games," Games and Economic Behavior, Elsevier, vol. 41(2), pages 265-291, November. [Downloadable!] (restricted)
Other versions:
- Matthew O. Jackson & Alison Watts, 2000. "On the Formation of Interaction Networks in Social Coordination Games," Econometric Society World Congress 2000 Contributed Papers 0778, Econometric Society. [Downloadable!]
Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
Other versions:
- Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November. [Downloadable!] (restricted)
Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA. [Downloadable!]
Other versions:
- Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
Bhaskar Dutta & Suresh Mutuswami, 1997. "Stable Networks," Tinbergen Institute Discussion Papers 97-039/1, Tinbergen Institute.
Other versions:
- Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
- Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October. [Downloadable!] (restricted)
Gorton, Gary, 1985. "Bank suspension of convertibility," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 177-193, March. [Downloadable!] (restricted)
Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June. [Downloadable!] (restricted)
Corominas-Bosch, Margarida, 2004. "Bargaining in a network of buyers and sellers," Journal of Economic Theory, Elsevier, vol. 115(1), pages 35-77, March. [Downloadable!] (restricted)
Goyal, S. & Joshi, S., 2000. "Networks of Collaboration in Oligopoly," Econometric Institute Report EI 9952-/A Revision_Date:, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
Other versions:
- Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
- Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Craig Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 313-328.
Aghion, Philippe & Bolton, Patrick & Dewatripont, Mathias, 2000. "Contagious bank failures in a free banking system," European Economic Review, Elsevier, vol. 44(4-6), pages 713-718, May. [Downloadable!] (restricted)

Full references

Statistics
Access and download statistics

Did you know? There is a FAQ (frequently asked questions).

This page was last updated on 2009-11-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.