Liquidity, Interbank Network Topology and Bank Capital

Aref Mahdavi Ardekani ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: By applying the interbank network simulation, this paper examines whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network. While existing literature highlights the causal relationship that moves from liquidity to capital, the question of how interbank network characteristics affect this relationship remains unclear. Using a sample of commercial banks from 28 European countries, this paper suggests that banks' interconnectedness within interbank loan and deposit networks affects their decisions to set higher or lower regulatory capital rations when facing higher illiquidity. This study provides support for the need to implement minimum liquidity ratios to complement capital ratios, as stressed by the Basel Committee on Banking Regulation and Supervision. This paper also highlights the need for regulatory authorities to consider the network characteristics of banks.

Keywords: Interbank network topology; Bank regulatory capital; Liquidity risk; Basel III (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-mon, nep-net and nep-rmg
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02967226v2
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Published in 2020

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Related works:
Working Paper: Liquidity, Interbank Network Topology and Bank Capital (2020)
Working Paper: Liquidity, Interbank Network Topology and Bank Capital (2020)
Working Paper: Liquidity, Interbank Network Topology and Bank Capital (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-02967226

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