Systemic Liquidity Shortages and Interbank Network Structures

Seung Hwan Lee ()
Additional contact information
Seung Hwan Lee: Microprudential Analysis Department, The Bank of Korea

No 2013-4, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper aims to shed light on the systemic nature of liquidity risk and to propose a method for calculating systemic liquidity shortages. Our method incorporates not only direct liquidity shortages but also indirect liquidity shortages due to the knock-on effects through interbank linkages. We perform a simulation with a simple banking system model and find that a deficit bank can mitigate a liquidity shortage by holding more claims on a surplus bank. Meanwhile, a greater imbalance in liquidity positions across banks tends to aggravate the liquidity shortage of a deficit bank. According to comparative analysis between different types of network structures, a core-periphery network with a deficit money center bank gives rise to the highest level of systemic liquidity shortages, and a banking system becomes more vulnerable to liquidity shocks as its interbank network becomes more ill-matched.

Keywords: liquidity shortages; interbank network; systemic risk; knock-on effect (search for similar items in EconPapers)
JEL-codes: G01 G11 G21 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-03-19
References: Add references at CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2013-4.pdf Working Paper, 2013 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1304

Access Statistics for this paper

More papers in Working Papers from Economic Research Institute, Bank of Korea Contact information at EDIRC.
Bibliographic data for series maintained by Economic Research Institute ().