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Network Risk and Key Players: A Structural Analysis of Interbank Liquidity

Edward Denbee, Christian Julliard, Ye Li and Kathy Yuan
Additional contact information
Edward Denbee: Bank of England
Ye Li: OH State U
Kathy Yuan: London School of Economics and Political Science

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We estimate the liquidity multiplier and individual banks' contribution to systemic liquidity risk in an interbank network using a structural model. Banks borrow liquidity from neighbours and update their valuation based on neighbours' actions. When the former (latter) motive dominates, the equilibrium exhibits strategic substitution (complementarity) of liquidity holdings, and a reduced (increased) liquidity multiplier dampening (amplifying) shocks. Empirically, we find substantial and procyclical network-generated risks driven mostly by changes of equilibrium type rather than network topology. We identify the banks that generate most systemic risk and solve the planner's problem, providing guidance to macro-prudential policies.

Date: 2018-03
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Citations: View citations in EconPapers (6)

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http://ssrn.com/abstract=2884461

Related works:
Journal Article: Network risk and key players: A structural analysis of interbank liquidity (2021) Downloads
Working Paper: Network risk and key players: a structural analysis of interbank liquidity (2021) Downloads
Working Paper: Network risk and key players: a structural analysis of interbank liquidity (2014) Downloads
Working Paper: Network Risk and Key Players: A Structural Analysis of Interbank Liquidity (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2018-11

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