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A Network View on Interbank Liquidity

Presented by: 
C-P Georg University of Cape Town
Friday 29th August 2014 -
11:00 to 11:30
INI Seminar Room 1
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.

University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons