Network risk and key players: a structural analysis of interbank liquidity

Denbee, Edward, Julliard, Christian, Li, Ye and Yuan, Kathy (2021) Network risk and key players: a structural analysis of interbank liquidity. Journal of Financial Economics, 141 (3). pp. 831-859. ISSN 0304-405X

Text (Yuan__network-risk-and-key-players--accepted) - Accepted Version Repository staff only until 16 May 2023. Download (4MB) | Request a copy

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Abstract

Using a structural model, we estimate the liquidity multiplier of an interbank network and banks’ contributions to systemic risk. To provide payment services, banks hold reserves. Their equilibrium holdings can be strategic complements or substitutes. The former arises when payment velocity and multiplier are high. The latter prevails when the opportunity cost of liquidity is large, incentivising banks to borrow neighbors’ reserves instead of holding their own. Consequently, the network can amplify or dampen shocks to individual banks. Empirically, network topology explains cross-sectional heterogeneity in banks’ systemic-risk contributions while changes in the equilibrium type drive time-series variation.

Item Type:	Article
Official URL:	https://www.sciencedirect.com/journal/journal-of-f...
Additional Information:	© 2020 Elsevier B.V.
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory Q Science > QA Mathematics
Date Deposited:	01 Sep 2020 14:39
Last Modified:	20 Oct 2021 02:53
URI:	http://eprints.lse.ac.uk/id/eprint/106280

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