Do Banks Change Their Liquidity Ratios Based on Network Characteristics?

44 Pages Posted: 10 Jan 2020

See all articles by Aref Mahdavi Ardekani

Aref Mahdavi Ardekani

Centre d'Economie de la Sorbonne (CES)

Isabelle Distinguin

affiliation not provided to SSRN

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: May 1, 2019

Abstract

By applying interbank network simulation, this paper investigates the impact of interbank network topology on bank liquidity ratios. Whereas regulators have put more emphasis on liquidity requirements since the global financial crisis of 2007-2008, how differently shaped interbank networks affect individual bank liquidity behavior remains an open issue. We look at how banks' interconnectedness within interbank loan and deposit networks affects their decisions to hold more or less liquidity during normal times and distress times. Our sample consists of commercial, investment, and real estate and mortgage banks in 28 European countries and allows us to differentiate large and small networks. Our results show that accounting for bank connections within a network is important to understand how banks set their liquidity ratios. Our findings have critical implications for the implementation of Basel III liquidity requirements and bank supervision more generally.

Keywords: OR in Banking; Interbank network topology; Network simulation; Basel III; Liquidity ris

JEL Classification: C63, D85, G21, G28, L14

Suggested Citation

Mahdavi Ardekani, Aref and Distinguin, Isabelle and Tarazi, Amine, Do Banks Change Their Liquidity Ratios Based on Network Characteristics? (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3507860 or http://dx.doi.org/10.2139/ssrn.3507860

Aref Mahdavi Ardekani (Contact Author)

Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Isabelle Distinguin

affiliation not provided to SSRN

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
25
Abstract Views
196
PlumX Metrics