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Towards a Network Description of Interbank Payment Flows

Marc Pröpper, Iman Lelyveld and Ronald Heijmans

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: We present the application of network theory to the Dutch payment system with specific attention to systemic stability. The network nodes comprise of domestic banks, large international banks and TARGET countries, the links are established by payments between the nodes. Traditional measures (transactions, values) first show payments are relatively well behaved through time and that the system does not contain a group of significant structural net receivers or payers among the participant institutions. Structural circular flows do, however, exist in the system, most prominently a large circular net flow between TARGET countries. Analysis of the properties of prominent network measures over time shows that fast network development takes place in the early phase of network formation of about one hour and slower development afterwards. The payment network is small (in actual nodes and links), compact (in path length and eccentricity) and sparse (in connectivity) for all time periods. In the long run, a mere 12% of the possible number of interbank connections is ever used and banks are on average only 2 steps apart. Relations in the network tend to be reciprocal. Our results also indicate that the network is susceptible to directed attacks. In a final section we show that the recent sub prime' turmoil in credit markets has not materially affected the network structure.

Keywords: network; topology; interbank; payment; systemic risk; financial stability (search for similar items in EconPapers)
JEL-codes: G1 E5 (search for similar items in EconPapers)
Date: 2008-05
New Economics Papers: this item is included in nep-ban and nep-net
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Citations: View citations in EconPapers (13) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:177

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