Structural distortions in the Euro interbank market: The role of 'key players' during the recent market turmoil

High-value transactions between Australian banks are settled in the Reserve Bank Information and Transfer System (RITS) administered by the Reserve Bank of Australia. RITS operates on a real-time gross settlement (RTGS) basis and settles payments sourced from the SWIFT, the Austraclear, and the interbank transactions entered directly into RITS. In this paper, we analyse a dataset received from the Reserve Bank of Australia that includes all interbank transactions settled in R...

In this paper, we analyze the effect of a policy recommendation on the performance of an artificial interbank market. Financial institutions stipulate lending agreements following a public recommendation and their individual information. The former is modeled by a reinforcement learning optimal policy that maximizes the system's fitness and gathers information on the economic environment. The policy recommendation directs economic actors to create credit relationships through...

Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate funding liquidity risk and contagion are available but they require not only banks' bilateral exposures data but also balance sheet data with sufficient granularity, which are hardly available. Alternatively, risk analyses on interbank networks...

This paper presents a dynamic game framework to analyze the role of large banks in the interbank market. By extending existing models, we incorporate a major bank as a dynamic decision-maker interacting with multiple small banks. Using the mean field game methodology and convex analysis, best-response trading strategies are derived, leading to an approximate equilibrium for the interbank market. We investigate the influence of the large bank on the market stability by examini...

This paper presents the first topological analysis of the economic structure of an entire country based on payments data obtained from Swedbank. This data set is exclusive in its kind because around 80% of Estonia's bank transactions are done through Swedbank, hence, the economic structure of the country can be reconstructed. Scale-free networks are commonly observed in a wide array of different contexts such as nature and society. In this paper, the nodes are comprised by cu...

Since the 2007-2009 financial crisis, substantial academic effort has been dedicated to improving our understanding of interbank lending networks (ILNs). Because of data limitations or by choice, the literature largely lacks multiple loan maturities. We employ a complete interbank loan contract dataset to investigate whether maturity details are informative of the network structure. Applying the layered stochastic block model of Peixoto (2015) and other tools from network sci...

This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters for the creation of the network, several interbank networks are built, in which the concentrations of debts and credits are obtained from links distributions during the creation networks process. Three main types of interbank network are an...

This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability. Within an agent-based stock-flow consistent framework, banks can engage in two segments of the interbank market that differ in maturity, overnight and term. We compare two interbank matching scenarios to assess how bank-specific maturity targ...

Interbank lending and borrowing occur when financial institutions seek to settle and refinance their mutual positions over time and circumstances. This interactive process involves money creation at the aggregate level. Coordination mismatch on interbank credit may trigger systemic crises. This happened when, since summer 2007, interbank credit coordination did not longer work smoothly across financial institutions, eventually requiring exceptional monetary policies by centra...

Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB (Exposed-Distressed-Bankrupted) model for the dynamics of liquidity shocks reverberation between banks, and validate it on electronic market for interbank deposits data. We show that the interbank network was highly susceptible to liquidity contagion ...