Identifying relationship lending in the interbank market: A network approach

Interbank markets are fundamental for bank liquidity management. In this paper, we introduce a model of interbank trading with memory. Our model reproduces features of preferential trading patterns in the e-MID market recently empirically observed through the method of statistically validated networks. The memory mechanism is used to introduce a proxy of trust in the model. The key idea is that a lender, having lent many times to a borrower in the past, is more likely to lend...

We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two main issues. First, we characterize the division of roles between borrowers and lenders in long-run relations by providing evidence on network formation at a year...

The global financial system has become highly connected and complex. Has been proven in practice that existing models, measures and reports of financial risk fail to capture some important systemic dimensions. Only lately, advisory boards have been established in high level and regulations are directly targeted to systemic risk. In the same direction, a growing number of researchers employ network analysis to model systemic risk in financial networks. Current approaches are c...

This paper provides the first empirical network analysis of the Argentine interbank money market. Its main topological features are examined applying graph theory, focusing on the unsecured overnight loans settled from 2003 to 2017. The network, where banks are the nodes and the operations between them represent the links, exhibits low density, a higher reciprocity than comparable random graphs, short average distances and its clustering coefficient remains above that of a ra...

We detect the backbone of the weighted bipartite network of the Japanese credit market relationships. The backbone is detected by adapting a general method used in the investigation of weighted networks. With this approach we detect a backbone that is statistically validated against a null hypothesis of uniform diversification of loans for banks and firms. Our investigation is done year by year and it covers more than thirty years during the period from 1980 to 2011. We relat...

The financial crisis clearly illustrated the importance of characterizing the level of 'systemic' risk associated with an entire credit network, rather than with single institutions. However, the interplay between financial distress and topological changes is still poorly understood. Here we analyze the quarterly interbank exposures among Dutch banks over the period 1998-2008, ending with the crisis. After controlling for the link density, many topological properties display ...

The global financial crisis in 2007-2009 demonstrated that systemic risk can spread all over the world through a complex web of financial linkages, yet we still lack fundamental knowledge about the evolution of the financial web. In particular, interbank credit networks shape the core of the financial system, in which a time-varying interconnected risk emerges from a massive number of temporal transactions between banks. The current lack of understanding of the mechanics of i...

We use bank-level balance sheet data from 2005 to 2010 to study interactions within the banking system of five emerging countries: Argentina, Brazil, Mexico, South Africa, and Taiwan. For each country we construct a financial network based on the leverage ratio dependence between each pair of banks, and find results that are comparable across countries. Banks present a variety of leverage ratio behaviors. This leverage diversity produces financial networks that exhibit a modu...

We use the theory of complex networks in order to quantitatively characterize the formation of communities in a particular financial market. The system is composed by different banks exchanging on a daily basis loans and debts of liquidity. Through topological analysis and by means of a model of network growth we can determine the formation of different group of banks characterized by different business strategy. The model based on Pareto's Law makes no use of growth or prefe...

It is generally accepted that neighboring nodes in financial networks are negatively assorted with respect to the correlation between their degrees. This feature would play an important 'damping' role in the market during downturns (periods of distress) since this connectivity pattern between firms lowers the chances of auto-amplifying (the propagation of) distress. In this paper we explore a trade-network of industrial firms where the nodes are suppliers or buyers, and the l...