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Interbank tiering and money center banks

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  • Craig, Ben R.
  • von Peter, Goetz

Abstract

This paper provides evidence that interbank markets are tiered rather than flat, in the sense that most banks do not lend to each other directly but through money center banks acting as intermediaries. We capture the concept of tiering by developing a core-periphery model, and devise a procedure for fitting the model to real-world networks. Using Bundesbank data on bilateral interbank exposures among 1800 banks, we find strong evidence of tiering in the German banking system. Moreover, bankspecific features, such as balance sheet size, predict how banks position themselves in the interbank market. This link provides a promising avenue for understanding the formation of financial networks. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2010,12.

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Date of creation: 2010
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Handle: RePEc:zbw:bubdp2:201012

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Keywords: interbank markets; intermediation; networks; tiering; core and periphery; market structure;

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