The sterling unsecured loan market during 2006-08: insights from network theory
We model the unsecured overnight market in the United Kingdom as a network of relationships and examine how the structure has changed over the recent period of crisis. Using established network techniques, we find strong evidence of the existence of a core of highly connected banks alongside a periphery. We find that membership of this core expanded during the crisis and suggest that this is due to a few intermediate banks becoming more connected. The widened reserve target bands may have also had an effect, by partially alleviating the need to manage reserve accounts close to a target and therefore allowing banks to exercise more discretion in forming relationships. However, there is an asymmetry between borrowers and lenders in the overnight market, with borrowers more reliant on the most established of the core banks during the crisis.
|Date of creation:||29 Jul 2010|
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- Becher, Christopher & Millard, Stephen & SoramÃÂÃÂ¤ki, Kimmo, 2008. "The network topology of CHAPS Sterling," Bank of England working papers 355, Bank of England.
- Cocco, João F. & Gomes, Francisco J. & Martins, Nuno C., 2009. "Lending relationships in the interbank market," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 24-48, January. Full references (including those not matched with items on IDEAS)
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