Interbank Networks in the Shadows of the Federal Reserve Act

66 Pages Posted: 6 May 2019 Last revised: 3 Oct 2022

See all articles by Haelim Anderson

Haelim Anderson

Government of the United States of America – Federal Deposit Insurance Corporation; Yale University - Yale Program on Financial Stability

Selman Erol

Carnegie Mellon University - David A. Tepper School of Business

Guillermo Ordoñez

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: October 3, 2022

Abstract

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

Anderson, Haelim and Erol, Selman and Ordoñez, Guillermo, Interbank Networks in the Shadows of the Federal Reserve Act (October 3, 2022). Available at SSRN: https://ssrn.com/abstract=3367203 or http://dx.doi.org/10.2139/ssrn.3367203

Haelim Anderson

Government of the United States of America – Federal Deposit Insurance Corporation ( email )

550 17th Street NW
Washington, DC 20429
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Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Selman Erol (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Guillermo Ordoñez

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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