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Liquidity, Interbank Network Topology and Bank Capital

Aref Mahdavi Ardekani ()

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: By applying the interbank network simulation, this paper examines whether the causal relationship between capital and liquidity is influenced by bank positions in the interbank network. While existing literature highlights the causal relationship that moves from liquidity to capital, the question of how interbank network characteristics affect this relationship remains unclear. Using a sample of commercial banks from 28 European countries, this paper suggests that bank's interconnectedness within interbank loan and deposit networks affects their decisions to set higher or lower regulatory capital ratios when facing higher iliquidity. This study provides support for the need to implement minimum liquidity ratios to complement capital ratios, as stressed by the Basel Committee on Banking Regulation and Supervision. This paper also highlights the need for regulatory authorities to consider the network characteristics of banks

Keywords: Interbank network topology; Bank regulatory capital; Liquidity risk; Basel III (search for similar items in EconPapers)
JEL-codes: G21 G28 L14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-10, Revised 2020-12
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cmp, nep-net and nep-rmg
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Downloads: (external link)
http://mse.univ-paris1.fr/pub/mse/CES2020/20022R.pdf (application/pdf)
https://halshs.archives-ouvertes.fr/halshs-02967226v2

Related works:
Working Paper: Liquidity, Interbank Network Topology and Bank Capital (2020) Downloads
Working Paper: Liquidity, Interbank Network Topology and Bank Capital (2020) Downloads
Working Paper: Liquidity, Interbank Network Topology and Bank Capital (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:20022r

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