A Network View on Interbank Market Freezes

Presented at the 10th Tinbergen Institute Conference 2015, Silvia Gabrieli (Banque de France) and Co-Pierre Georg (University Cape Town & Bundesbank) illustrate the liquidity allocation among European banks using novel data of all interbank loans settled via the Eurosystem's payment system TARGET2. To do so, they show the existence of a sizable interbank lending channel.

In the article, Gabrieli and Georg discuss (1) the institutional framework in the euroarea; (2) the interbank market around the Lehman insolvency and study the role of counterparty risk and liquidity hoarding; and (3) the network view, where they first study the change in the interbank network structure and second show that a bank's position in the interbank network has a significant impact on this bank's access to liquidity. Gabrieli and Georg conclude with the 'cautionary evidence' for central bank intervention.

The objective of the Tinbergen Institute Conference 2015 was (1) to introduce a broad economic public to the complex systems approach, in particular applied to macroeconomic and financial systems; and (2) to increase understanding and foster collaboration between the different sciences in the analysis of economics and finance.

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