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Interconnectedness in the Interbank Market

Author

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  • Brunetti, Celso

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Harris, Jeffrey H.

    (American University)

  • Mankad, Shawn

    (University of Maryland)

  • Michailidis, George

    (University of Michigan)

Abstract

We study the behavior of the interbank market before, during and after the 2008 financial crisis. Leveraging recent advances in network analysis, we study two network structures, a correlation network based on publicly traded bank returns, and a physical network based on interbank lending transactions. While the two networks behave similarly pre-crisis, during the crisis the correlation network shows an increase in interconnectedness while the physical network highlights a marked decrease in interconnectedness. Moreover, these networks respond differently to monetary and macroeconomic shocks. Physical networks forecast liquidity problems while correlation networks forecast financial crises.

Suggested Citation

  • Brunetti, Celso & Harris, Jeffrey H. & Mankad, Shawn & Michailidis, George, 2015. "Interconnectedness in the Interbank Market," Finance and Economics Discussion Series 2015-90, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2015-90
    DOI: 10.17016/FEDS.2015.090
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    Citations

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    Cited by:

    1. Brida, Juan Gabriel & Matesanz, David & Seijas, Maria Nela, 2016. "Network analysis of returns and volume trading in stock markets: The Euro Stoxx case," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 751-764.
    2. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    3. repec:eee:finlet:v:27:y:2018:i:c:p:185-192 is not listed on IDEAS
    4. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    5. Kuzubaş, Tolga Umut & Saltoğlu, Burak & Sever, Can, 2016. "Systemic risk and heterogeneous leverage in banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 358-375.
    6. Flood, Mark D. & Lemieux, Victoria L. & Varga, Margaret & William Wong, B.L., 2016. "The application of visual analytics to financial stability monitoring," Journal of Financial Stability, Elsevier, vol. 27(C), pages 180-197.
    7. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667097, HAL.
    8. repec:eee:phsmap:v:486:y:2017:i:c:p:883-894 is not listed on IDEAS
    9. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.
    10. Bertrand Candelon & Laurent Ferrara & Marc Joëts, 2016. "Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel," Post-Print hal-01667093, HAL.

    More about this item

    Keywords

    Interconnectedness; correlation network; financial crisis; interbank market; physical network;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G2 - Financial Economics - - Financial Institutions and Services
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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