Liquidity Performance Evaluation of the Brazilian Interbank Market using a Network-Based Approach

Thiago Silva (), Marcos Silva and Benjamin Tabak

No 401, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: In this paper, we employ a comprehensive set of network measurements to assess the determinant factors of banking liquidity performance in the Brazilian interbank network. In our empirical model, we proxy the banking liquidity performance with the liquidity coverage ratio as defined in Basel III. We first show that the Brazilian interbank network has a core-periphery structure and then find that this peculiar network topology can improve liquidity performance of banks. Considering several evidences in the literature pointing to the fact that interbank markets seem to self-organize in core-periphery structures, this finding suggest that interbank systems drive themselves to a network organization that enhances the financial system liquidity. In contrast, we also argue that core-periphery structures can lead to large liquidity shortfalls in the financial network in case a core bank defaults, implying a greater systemic risk. Nonetheless, we show that the default probabilities of core banks are very low in the Brazilian interbank market.

Date: 2015-09
New Economics Papers: this item is included in nep-ban and nep-net
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Citations: View citations in EconPapers (3)

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