A Network View on Interbank Market Freezes

45 Pages Posted: 21 Jun 2016

See all articles by Silvia Gabrieli

Silvia Gabrieli

Banque de France

Co-Pierre Georg

University of Cape Town; Deutsche Bundesbank

Date Written: 2014

Abstract

We study the liquidity allocation among European banks around the Lehman insolvency using a novel dataset of all interbank loans settled via the Eurosystem's payment system TARGET2. Following the Lehman insolvency, lenders in the overnight segment become sensitive to counterparty characteristics and banks start hoarding liquidity by shortening the maturity of their interbank lending. This aggregate change in liquidity reallocation is accompanied by a substantial structural change that can best be characterized as a shrinking of the interbank network. Such a change in the network structure is consequential: banks with higher centrality within the network have better access to liquidity and are able to charge larger intermediation spreads. Therefore, we show the existence of a sizeable interbank lending channel.

Keywords: interbank loans, network topology, financial stability

JEL Classification: D85, E5, G1, G21

Suggested Citation

Gabrieli, Silvia and Georg, Co-Pierre, A Network View on Interbank Market Freezes (2014). Bundesbank Discussion Paper No. 44/2014. Available at SSRN: https://ssrn.com/abstract=2797027

Silvia Gabrieli (Contact Author)

Banque de France ( email )

32 rue Croix des Petits Champs
Paris, 75001
France

Co-Pierre Georg

University of Cape Town ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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