Interbank Tiering and Money Center Banks
41 Pages Posted: 5 Oct 2010
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Interbank Tiering and Money Center Banks
Interbank Tiering and Money Center Banks
Interbank Tiering and Money Center Banks
Date Written: September 29, 2010
Abstract
This paper provides evidence that interbank markets are tiered rather than flat, in the sense that most banks do not lend to each other directly but through money center banks acting as intermediaries. We capture the concept of tiering by developing a core-periphery model, and devise a procedure for tting the model to real-world networks. Using Bundesbank data on bilateral interbank exposures among 1800 banks, we find strong evidence of tiering in the German banking system. Econometrically, bank-specific features, such as balance sheet size, predict how banks position themselves in the interbank market. This link provides a promising avenue for understanding the formation of financial networks.
Keywords: Interbank markets, intermediation, networks, tiering, core and periphery, market structure
JEL Classification: G21, L14, D85, C63
Suggested Citation: Suggested Citation
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