The sterling unsecured loan market during 2006-08: insights from network theory

Anne Wetherilt, Peter Zimmerman and Kimmo Soramäki (kimmo@fna.fi)

No 398, Bank of England working papers from Bank of England

Abstract: We model the unsecured overnight market in the United Kingdom as a network of relationships and examine how the structure has changed over the recent period of crisis. Using established network techniques, we find strong evidence of the existence of a core of highly connected banks alongside a periphery. We find that membership of this core expanded during the crisis and suggest that this is due to a few intermediate banks becoming more connected. The widened reserve target bands may have also had an effect, by partially alleviating the need to manage reserve accounts close to a target and therefore allowing banks to exercise more discretion in forming relationships. However, there is an asymmetry between borrowers and lenders in the overnight market, with borrowers more reliant on the most established of the core banks during the crisis.

Keywords: Network; topology; interbank; unsecured loan; systemic risk; financial stability. (search for similar items in EconPapers)
JEL-codes: D85 E58 G21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-07-29
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0398

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