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Liquidity Performance Evaluation of the Brazilian Interbank Market using a Network-Based Approach

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Listed:
  • Thiago Christiano Silva
  • Marcos Soares da Silva
  • Benjamin Miranda Tabak

Abstract

In this paper, we employ a comprehensive set of network measurements to assess the determinant factors of banking liquidity performance in the Brazilian interbank network. In our empirical model, we proxy the banking liquidity performance with the liquidity coverage ratio as defined in Basel III. We first show that the Brazilian interbank network has a core-periphery structure and then find that this peculiar network topology can improve liquidity performance of banks. Considering several evidences in the literature pointing to the fact that interbank markets seem to self-organize in core-periphery structures, this finding suggest that interbank systems drive themselves to a network organization that enhances the financial system liquidity. In contrast, we also argue that core-periphery structures can lead to large liquidity shortfalls in the financial network in case a core bank defaults, implying a greater systemic risk. Nonetheless, we show that the default probabilities of core banks are very low in the Brazilian interbank market.

Suggested Citation

  • Thiago Christiano Silva & Marcos Soares da Silva & Benjamin Miranda Tabak, 2015. "Liquidity Performance Evaluation of the Brazilian Interbank Market using a Network-Based Approach," Working Papers Series 401, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:401
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    References listed on IDEAS

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    Cited by:

    1. Marnix Van Soom & Milan van den Heuvel & Jan Ryckebusch & Koen Schoors, 2019. "Loan maturity aggregation in interbank lending networks obscures mesoscale structure and economic functions," Papers 1906.08617, arXiv.org.
    2. Silva, Thiago Christiano & de Souza, Sergio Rubens Stancato & Tabak, Benjamin Miranda, 2016. "Structure and dynamics of the global financial network," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 218-234.

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