The Topology of the Interbank Market: Developments in Italy Since 1990

41 Pages Posted: 4 Oct 2009

Date Written: May 25, 2009

Abstract

When a bank defaults or stops trading in the interbank market, both a liquidity shortage in the market itself and mounting trading losses should be anticipated. To gain more insight into the way a liquidity crisis spreads, we apply network topology techniques to monthly data on deposits exchanged by Italian banks, from 1990 to 2008. Our research yields three main results: first, only a few banks are today pivotal in the redistribution of liquidity across the system, while banks close to, but outside this core circle, weigh less than they used to; secondly, the halt in operations in a second set of banks may cut off some of their counterparts from the rest of the network, with increasingly less negligible effects; finally, only 2-3 banks out of the 10 we identify as most interconnected within the network are currently also among the top 10 banks by volume of traded deposits.

Keywords: interbank market, topology, liquidity crisis

JEL Classification: D4, E5, G2

Suggested Citation

Iazzetta, Carmela and Manna, Michele, The Topology of the Interbank Market: Developments in Italy Since 1990 (May 25, 2009). Bank of Italy Temi di Discussione (Working Paper) No. 711, Available at SSRN: https://ssrn.com/abstract=1478472 or http://dx.doi.org/10.2139/ssrn.1478472

Carmela Iazzetta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Michele Manna (Contact Author)

Bank of Italy ( email )

via Nazionale 91
00184 Roma
Italy

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