Interbank Networks in the Shadows of the Federal Reserve Act
66 Pages Posted: 6 May 2019 Last revised: 3 Oct 2022
Date Written: October 3, 2022
We study how the provision of public liquidity affects the role and structure of the banking system by analyzing the change of portfolios and interbank relationships of nonmember (“shadow”) banks upon the creation of the U.S. Federal Reserve. Using unique data on the payments and funding networks of Virginia state banks, we document that the funding role of the interbank system became more important, and its payments role less important. In addition, interbank relationships became less centralized. Based on these findings, we develop a model to assess how public liquidity provision affects banking stability.
Keywords: Dual banking system, Federal Reserve Act, Shadow Banking, Interbank Networks, Systemic Risk
JEL Classification: G20, E50, N22
Suggested Citation: Suggested Citation