A Network View on Interbank Liquidity
Deutsche Bundesbank Discussion Paper 44/2014
47 Pages Posted: 3 Jan 2015 Last revised: 8 Aug 2017
Date Written: August 7, 2017
The euro area overnight interbank market is best described as a network of over-the-counter lending relationships. We study liquidity reallocation in this interbank network using a novel dataset of all interbank loans settled between European banks. We show the existence of a centrality premium when banks act as intermediaries of liquidity: banks with a one standard deviation higher betweenness centrality capture a 30% larger intermediation spread. Our results are in line with predictions from models of intermediation and bargaining in networks, but are difficult to reconcile with search based models of over-the-counter markets.
Keywords: interbank networks, liquidity, bargaining power
JEL Classification: D85, E5, G1, G21
Suggested Citation: Suggested Citation