Do Market-Based Networks Reflect True Exposures between Banks?

75 Pages Posted: 8 Nov 2023

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

Madina Karamysheva

National Research University Higher School of Economics (Moscow)

Dilyara Salakhova

Banque de France

Date Written: November, 2023

Abstract

We compare networks constructed using five commonly used methods and publicly available daily market data to networks based on reported exposures along several dimensions of the balance sheet, i.e., loans, bonds, equity. Our findings suggest that while the global network structure remains stable, individual exposures are more dynamic. The main message from the regression analysis is that the market-based networks do their job relatively well, however, various market-based networks capture different types of exposures. All the measures reflect common portfolios of bonds and loans. Equity-based measures match better direct and indirect equity, while credit-risk measures capture direct bonds. None of the measures robustly identify direct interbank lending.

Keywords: banking regulation, interconnections, market-based networks, true-exposure networks, financial networks

JEL Classification: G20, L14, D85, C63

Suggested Citation

Craig, Ben R. and Karamysheva, Madina and Salakhova, Dilyara, Do Market-Based Networks Reflect True Exposures between Banks? (November, 2023). ECB Working Paper No. 2023/2867, Available at SSRN: https://ssrn.com/abstract=4626466 or http://dx.doi.org/10.2139/ssrn.4626466

Ben R. Craig (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-2061 (Phone)
216-579-3050 (Fax)

Deutsche Bundesbank

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

Madina Karamysheva

National Research University Higher School of Economics (Moscow) ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Dilyara Salakhova

Banque de France ( email )

Paris
France

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