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Too interconnected to fail: A survey of the Interbank Networks literature

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  • Hüser, Anne-Caroline

Abstract

The banking system is highly interconnected and these connections can be conveniently represented as an interbank network. This survey presents a systematic overview of the recent advances in the theoretical literature on interbank networks and assesses our current understanding of the structure of interbank networks, of how network characteristics affect contagion in the banking system and of how banks form connections when faced with the possibility of contagion and systemic risk. In particular, I highlight how the theoretical literature on interbank networks offers a coherent way of studying interconnections, contagion processes and systemic risk, while emphasizing at the same time the challenges that must be addressed before general results on the link between the structure of the interbank network and financial stability can be established. The survey concludes with a discussion of the policy relevance of interbank network models with a special focus on macro-prudential policies and monetary policy.

Suggested Citation

  • Hüser, Anne-Caroline, 2016. "Too interconnected to fail: A survey of the Interbank Networks literature," SAFE Working Paper Series 91, Leibniz Institute for Financial Research SAFE.
  • Handle: RePEc:zbw:safewp:91
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    Cited by:

    1. Hüser, Anne-Caroline & Kok, Christoffer, 2019. "Mapping bank securities across euro area sectors: comparing funding and exposure networks," Working Paper Series 2273, European Central Bank.
    2. Jiang, Shanshan & Fan, Hong, 2018. "Credit risk contagion coupling with sentiment contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 186-202.
    3. Galina Hale & Tümer Kapan & Camelia Minoiu, 2016. "Crisis Transmission in the Global Banking Network," IMF Working Papers 16/91, International Monetary Fund.

    More about this item

    Keywords

    Interbank networks; systemic risk; contagion; banking; macro-prudential policy;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises

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