LOAN MATURITY AGGREGATION IN INTERBANK LENDING NETWORKS OBSCURES MESOSCALE STRUCTURE AND ECONOMIC FUNCTIONS

Marnix Van Soom, Milan van den Heuvel, Jan Ryckebusch and Koen Schoors

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: Since the 2007-2009 financial crisis, substantial academic effort was dedicated to improving our understanding of interbank lending networks (ILNs). Because of data limitations, the literature largely lacks loan maturity information. We employ a complete interbank loan contract dataset to investigate whether maturity details are informative of the network structure. Applying the layered stochastic block model of Peixoto (2015)1 and other tools from network science on a time series of bilateral loans with multiple maturity layers in the Russian ILN, we find that collapsing all such layers consistently obscures mesoscale structure. The optimal maturity granularity lies between completely collapsing and completely separating the maturity layers and depends on the development phase of the interbank market, with a more developed market requiring more layers for optimal description. Closer inspection of the inferred maturity bins associated with the optimal maturity granularity reveals specific economic functions, from liquidity intermediation to financing. Collapsing a network with multiple underlying maturity layers, common in interbank research, is therefore not only an incomplete representation of the ILN’s mesoscale structure, but also conceals existing economic functions. This holds important insights and opportunities for theoretical and empirical studies on interbank market contagion, stability, and on the desirable level of regulatory data disclosure.

Pages: 23 pages
Date: 2019-01
New Economics Papers: this item is included in nep-ban, nep-cis and nep-tra
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Citations: View citations in EconPapers (1)

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Working Paper: Loan maturity aggregation in interbank lending networks obscures mesoscale structure and economic functions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:19/952

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