Networks and lending conditions: Empirical evidence from the Swiss franc money markets

Silvio Schumacher

No 2016-12, Working Papers from Swiss National Bank

Abstract: This paper provides an empirical analysis of the network characteristics of two interrelated interbank money markets and their impact on overall market conditions. Based on transaction data from the unsecured and secured Swiss franc money markets, the trading network structures are assessed before, during and after the financial market crisis. It can be shown that banks in the unsecured market are connected to a lower number of counterparties but rely heavily on reciprocal and clustered trading relationships. The corresponding network structure likely favored the exchange of liquidity prior to the financial market crisis but also might have led to a lower resilience of the unsecured market. There is empirical evidence that conditions in both sub-markets were significantly driven by the individual network position of banks. The network topology likely affected the shift observed from unsecured to secured lending and the increase in risk premia for unsecured lending during the financial market crisis. This paper therefore provides further evidence on the functioning of interbank money markets and, especially, on the impact of market participants interconnectedness.

Keywords: Repo transaction; unsecured interbank money market; financial market turmoil; financial stability; Switzerland (search for similar items in EconPapers)
JEL-codes: E42 E43 E58 G01 G12 G21 L14 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2016
New Economics Papers: this item is included in nep-mac, nep-mon, nep-net and nep-sog
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2016-12

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