Un-Networking: The Evolution of Networks in the Federal Funds Market

Posted: 9 Jul 2021

See all articles by Daniel O. Beltran

Daniel O. Beltran

Board of Governors of the Federal Reserve System

Valentin Bolotnyy

affiliation not provided to SSRN

Elizabeth C. Klee

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: July, 2015

Abstract

Using a network approach to characterize the evolution of the federal funds market during the Great Recession and financial crisis of 2007-2008, we document that many small federal funds lenders began reducing their lending to larger institutions in the core of the network starting in mid-2007. But an abrupt change occurred in the fall of 2008, when small lenders left the federal funds market en masse and those that remained lent smaller amounts, less frequently. We then test whether changes in lending patterns within key components of the network were associated with increases in counterparty and liquidity risk of banks that make up the core of the network. Using both aggregate and bank-level network metrics, we find that increases in counterparty and liquidity risk are associated with reduced lending activity within the network. We also contribute some new ways of visualizing financial networks.

JEL Classification: E50, G20

Suggested Citation

Beltran, Daniel O. and Bolotnyy, Valentin and Klee, Elizabeth C., Un-Networking: The Evolution of Networks in the Federal Funds Market (July, 2015). FEDS Working Paper No. 2015-55, Available at SSRN: https://ssrn.com/abstract=3876999

Daniel O. Beltran (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Valentin Bolotnyy

affiliation not provided to SSRN

No Address Available

Elizabeth C. Klee

affiliation not provided to SSRN

No Address Available

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