Structural Distortions in the Euro Interbank Market: The Role of 'Key Players' during the Recent Market Turmoil

Caterina Liberati (caterina.liberati@unimib.it), Massimiliano Marzo, Paolo Zagaglia and Paola Zappa (paola.zappa1@unimib.it)
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Caterina Liberati: Economics Department, Università degli Studi Milano-Bicocca, Italy
Paola Zappa: Economics Department, Università degli Studi Milano-Bicocca, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two main issues. first, we characterize the division of roles between borrowers and lenders in long-run relations by providing evidence on network formation at a yearly frequency. Second, we identify the ‘key players’ in the marketplace and study their behaviour. Key players are ‘locally-central banks’ within a network that lend (or borrow) large volumes to (from) several counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions. Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by largely asymmetric relations. This implies a clear division of roles between lenders and borrowers. Second, the key players do not exploit their position of network leaders by imposing opportunistic pricing policies. We find that only a fraction of the networks composed by big players are characterized by interest rates that are statistically different from the average market rate throughout the turmoil period.

Keywords: Market microstructure; network analysis; money markets; asset pricing (search for similar items in EconPapers)
JEL-codes: D85 G01 G10 G21 (search for similar items in EconPapers)
Date: 2012-07
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Related works:
Working Paper: Structural distortions in the Euro interbank market: The role of 'key players' during the recent market turmoil (2012)
Working Paper: Structural distortions in the Euro interbank market: The role of key players during the recent market turmoil (2012)
Working Paper: Structural distortions in the Euro interbank market: the role of 'key players' during the recent market turmoil (2012)
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