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A Network View on Interbank Liquidity

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Systemic Risk: Mathematical Modelling and Interdisciplinary Approaches

Joint with S. Gabrieli

We use a novel dataset on all interbank money market transactions settled via the Eurosystem’s payment system TARGET2 to study the liquidity allocation among European banks around the Lehman insolvency. We show that a freeze occured only in the term segment of the market. Using global and local network measures we characterize this freeze as a network shrinking process. We show that a bank’s network position within the market has a significant impact on its lending and borrowing activity post-Lehman. Taking the network structure into account is therefore essential in understanding the reaction of the money market to adverse shocks.

This talk is part of the Isaac Newton Institute Seminar Series series.

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