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The topology of the interbank market: developments in Italy since 1990

Listed author(s):
  • Michele Manna

    ()

    (Bank of Italy)

  • Carmela Iazzetta

    ()

    (Bank of Italy)

When a bank defaults or stops trading in the interbank market, both a liquidity shortage in the market itself and mounting trading losses should be anticipated. To gain more insight into the way a liquidity crisis spreads, we apply network topology techniques to monthly data on deposits exchanged by Italian banks, from 1990 to 2008. Our research yields three main results: first, only a few banks are today pivotal in the redistribution of liquidity across the system, while banks close to, but outside this core circle, weigh less than they used to; secondly, the halt in operations in a second set of banks may cut off some of their counterparts from the rest of the network, with increasingly less negligible effects; finally, only 2-3 banks out of the 10 we identify as most interconnected within the network are currently also among the top 10 banks by volume of traded deposits.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 711.

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Date of creation: May 2009
Handle: RePEc:bdi:wptemi:td_711_09
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