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Networks, interconnectedness, and interbank information asymmetry

Celso Brunetti, Jeffrey Harris and Shawn Mankad

Journal of Financial Stability, 2023, vol. 67, issue C

Abstract: We explore interconnectedness in the interbank overnight lending market and propose the liquidity network and the urgent borrower network which capture the urgency to trade. The liquidity network connects the initiating party in a trade to the passive party, while the urgent borrower network connects passive sellers (lenders) to urgent buyers (borrowers). Along with the buyer/seller trading network, we show these networks complement each other, revealing valuable information that improves short-term forecasts of soft and hard information and country-specific yield spreads. Connectivity increases in these networks during raises volatility and boosts volume, revealing the dual nature of interconnectedness—too much interconnectedness may increase systemic risk, but too little may impede market functioning.

Keywords: Banking networks; Interconnectedness; Liquidity; Data methodology; Market microstructure (search for similar items in EconPapers)
JEL-codes: C10 G10 G21 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:67:y:2023:i:c:s1572308923000633

DOI: 10.1016/j.jfs.2023.101163

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