Which Bank is the 'Central' Bank? An Application of Markov Theory to the Canadian Large Value Transfer System
20 Pages Posted: 2 Dec 2008
Date Written: November 2008
Abstract
Recently, economists have argued that a bank's importance within the financial system depends not only on its individual characteristics but also on its position within the banking network. A bank is deemed to be "central" if, based on our network analysis, it is predicted to hold the most liquidity. In this paper, we use a method similar to Google's PageRank procedure to rank banks in the Canadian Large Value Transfer System (LVTS). In doing so, we obtain estimates of the payment processing speeds for the individual banks. These differences in processing speeds are essential for explaining why observed daily distributions of liquidity differ from the initial distributions, which are determined by the credit limits selected by banks.
Keywords: federal funds, network, topology, interbank, money markets
JEL Classification: C11, E50, G20
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Payment System Disruptions and the Federal Reserve following September 11, 2001
-
Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement
By Morten L. Bech and Bart Hobijn
-
Illiquidity in the Interbank Payment System Following Wide-Scale Disruptions
By Morten L. Bech and Rod Garratt
-
Interbank Overnight Interest Rates - Gains from Systemic Importance
-
Towards a Network Description of Interbank Payment Flows
By Marc Pröpper, Iman Van Lelyveld, ...
-
Monitoring the Unsecured Interbank Money Market Using Target2 Data
By Ronald Heijmans, Richard Heuver, ...
-
Disruptions in Large Value Payment Systems: An Experimental Approach
By Klaus Abbink, Ronald Bosman, ...