Systemic illiquidity in the interbank network
Gerardo Ferrara (),
Sam Langfield (),
Zijun Liu and
Tomohiro Ota ()
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Tomohiro Ota: Formerly Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
No 586, Bank of England working papers from Bank of England
We study systemic illiquidity using a unique data set on UK banks’ daily cash flows, short-term interbank funding and liquid asset buffers. Failure to roll-over short-term funding or repay obligations when they fall due generates an externality in the form of systemic illiquidity. We simulate a model in which systemic illiquidity propagates in the interbank funding network over multiple days. In this setting, we show that systemic illiquidity is minimised by a macroprudential policy that skews the distribution of liquid assets towards banks that are important in the network.
Keywords: Interbank network; systemic risk; liquidity regulation; macroprudential policy (search for similar items in EconPapers)
JEL-codes: D85 E44 E58 G28 (search for similar items in EconPapers)
Date: 2016-04-08, Revised 2017-08-14
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Working Paper: Systemic illiquidity in the interbank network (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0586
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