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

We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We construct a model where banks are allowed to use both the interbank and the securities markets to manage their liquidity demand and supply as driven by prudential requirements in a volatile environment. The network of interbank loans is dynamic an...

Recently, there has been a growing interest in network research, especially in these fields of biology, computer science, and sociology. It is natural to address complex financial issues such as the European sovereign debt crisis from the perspective of network. In this article, we construct a network model according to the debt--credit relations instead of using the conventional methodology to measure the default risk. Based on the model, a risk index is examined using the q...

Economic integration, globalization and financial crises represent examples of processes whose understanding requires the analysis of the underlying network structure. Of particular interest is establishing whether a real economic network is in a state of (quasi)stationary equilibrium, i.e. characterized by smooth structural changes rather than abrupt transitions. While in the former case the behaviour of the system can be reasonably controlled and predicted, in the latter ca...

We model a network economy with three sectors: downstream firms, upstream firms, and banks. Agents are linked by productive and credit relationships so that the behavior of one agent influences the behavior of the others through network connections. Credit interlinkages among agents are a source of bankruptcy diffusion: in fact, failure of fulfilling debt commitments would lead to bankruptcy chains. All in all, the bankruptcy in one sector can diffuse to other sectors through...

We propose a statistical model for weighted temporal networks capable of measuring the level of heterogeneity in a financial system. Our model focuses on the level of diversification of financial institutions; that is, whether they are more inclined to distribute their assets equally among partners, or if they rather concentrate their commitment towards a limited number of institutions. Crucially, a Markov property is introduced to capture time dependencies and to make our me...

In this article the problem of reconstructing the pattern of connection between agents from partial empirical data in a macro-economic model is addressed, given a set of behavioral equations. This systemic point of view puts the focus on distributional and network effects, rather than time-dependence. Using the theory of complex networks we compare several models to reconstruct both the topology and the flows of money of the different types of monetary transactions, while imp...

We use daily data on bilateral interbank exposures and monthly bank balance sheets to study network characteristics of the Russian interbank market over Aug 1998 - Oct 2004. Specifically, we examine the distributions of (un)directed (un)weighted degree, nodal attributes (bank assets, capital and capital-to-assets ratio) and edge weights (loan size and counterparty exposure). We search for the theoretical distribution that fits the data best and report the "best" fit parameter...

In the wake of the ongoing global financial crisis, interdependencies among banks have come into focus in trying to assess systemic risk. To date, such analysis has largely been based on numerical data. By contrast, this study attempts to gain further insight into bank interconnections by tapping into financial discussion. Co-mentions of bank names are turned into a network, which can be visualized and analyzed quantitatively, in order to illustrate characteristics of individ...

The recent financial crisis of 2008 and the 2011 indebtedness of Greece highlight the importance of understanding the structure of the global financial network. In this paper we set out to analyze and characterize this network, as captured by the IMF Coordinated Portfolio Investment Survey (CPIS), in two ways. First, through an adaptation of the "error and attack" methodology [1], we show that the network is of the "robust-yet-fragile" type, a topology found in a wide variety...

In the aftermath of the financial crisis, the growing literature on financial networks has widely documented the predictive power of topological characteristics (e.g. degree centrality measures) to explain the systemic impact or systemic vulnerability of financial institutions. In this work, we show that considering alternative topological measures based on local sub-network environment improves our ability to identify systemic institutions. To provide empirical evidence, we ...