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Networks and lending conditions: Empirical evidence from the Swiss franc money markets

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  • Silvio Schumacher

Abstract

This paper provides an empirical analysis of the network characteristics of two interrelated interbank money markets and their impact on overall market conditions. Based on transaction data from the unsecured and secured Swiss franc money markets, the trading network structures are assessed before, during and after the financial market crisis. It can be shown that banks in the unsecured market are connected to a lower number of counterparties but rely heavily on reciprocal and clustered trading relationships. The corresponding network structure likely favored the exchange of liquidity prior to the financial market crisis but also might have led to a lower resilience of the unsecured market. There is empirical evidence that conditions in both sub-markets were significantly driven by the individual network position of banks. The network topology likely affected the shift observed from unsecured to secured lending and the increase in risk premia for unsecured lending during the financial market crisis. This paper therefore provides further evidence on the functioning of interbank money markets and, especially, on the impact of market participants interconnectedness.

Suggested Citation

  • Silvio Schumacher, 2016. "Networks and lending conditions: Empirical evidence from the Swiss franc money markets," Working Papers 2016-12, Swiss National Bank.
  • Handle: RePEc:snb:snbwpa:2016-12
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    More about this item

    Keywords

    Repo transaction; unsecured interbank money market; financial market turmoil; financial stability; Switzerland;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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