Interconnectedness in the Interbank Market

Celso Brunetti, Jeffrey Harris, Shawn Mankad and George Michailidis

No 2015-90, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Interconnectedness; correlation network; financial crisis; interbank markets; physical network (search for similar items in EconPapers)
Pages: 47 pages
Date: 2015-09-30
New Economics Papers: this item is included in nep-ban, nep-mac, nep-mon and nep-net
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Citations: View citations in EconPapers (13)

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Journal Article: Interconnectedness in the interbank market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-90

DOI: 10.17016/FEDS.2015.090

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