Interbank deposits and bank systemic risk

Yulin Liu, Muhammad Sadiq, Fenghua Wen and Zhiling Cao

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: We examine the comprehensive causal impact of interbank deposits on bank systemic risk by using an international sample of Group of Twenty (G20) listed banks. Using the global wage direct deposit policy as an exogenous shock to interbank deposits, we find that higher interbank deposits result in greater bank systemic risk. A series of instrumental variable approaches, entropy-balanced method, and persistence tests further confirm our findings. Moreover, we document that interbank deposits influence systemic risk through two channels: interbank network linkages and bank risk-taking. Our study holds significant implications for both macro- and micro-prudential regulatory policies as it highlights the often-overlooked adverse impact of interbank deposits, which only a few countries incorporate into their prudential regulatory frameworks.

Keywords: Systemic risk; Interbank deposits; Financial network; Risk-taking (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006501

DOI: 10.1016/j.irfa.2024.103718

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