Model shows overnight interbank loans can lead to bank defaults without external shocks.
problem Systemic risk in overnight interbank market.
method Dynamic model of interbank loans and prudential requirements.
result Intrasystem cash fluctuations can cause systemic defaults.
Optimized execution model using interbank and internal liquidity.
problem Minimizing market impact in trading.
method Integrates interbank limit and market orders with internal market-making liquidity.
result Reduces market impact and improves execution efficiency.
Modelling of contagion in interbank networks is discussed. A model taking into account bow-tie structure and dissasortativity of interbank networks is developed. The model is shown to provide a good quantitative description of the Russian interbank market. Detailed arguments favoring the non-percolative nature of conta…
Study reveals multiple core-periphery structures in interbank markets, transforming during financial crises.
problem Understanding the complex structure and transformation of interbank markets during financial crises.
method Novel core-periphery detection method on eMID interbank market data.
result Interbank markets exhibit multiple core-periphery pairs and transition to bipartite structures over short time scales.
Modeling liquidity shocks in interbank markets to assess systemic risk.
problem Systemic risk in interbank lending markets due to liquidity shocks.
method Developed an EDB model based on compartment models used in epidemics.
result Interbank networks were highly susceptible to liquidity contagion at the start of the financial crisis.
Study amplifies systemic risk in interbank markets due to credit and liquidity shocks.
problem Systemic risk in interbank markets due to credit and liquidity shocks.
method Defined Debt-Solvency Rank to estimate amplification of losses, implemented on European banks dataset.
result Liquidity spillovers substantially increase systemic risk and cannot be neglected in stress-test scenarios.
Study confirms eurozone interbank market stability but finds higher collateral reuse.
problem Analyzing eurozone interbank market behavior and stability.
method Examined secured transactions data from ECB, tested stylized facts, measured network properties.
result Observed higher collateral reuse and network symmetry compared to unsecured markets.
Systemic risks of default contagion in the Russian interbank market are investigated. The analysis is based on considering the bow-tie structure of the weighted oriented graph describing the structure of the interbank loans. A probabilistic model of interbank contagion explicitly taking into account the empirical bow-t…
Proposes a new model to simulate interbank market liquidity risk.
problem Lack of complete interbank network data for systemic liquidity risk analysis.
method Epidemic model using funding liquidity shortage mechanism, enriched with country and bank risk features.
result Model successfully reproduces systemic liquidity risk across different years and countries.
The article presents calculations that prove practical importance of the earlier derived theoretical relationship between the interest rate on the interbank credit market, volume of investment and the quantity of securities tradable on the stock exchange.
Study examines large banks' role in interbank markets using game theory.
problem Understanding systemic risk in interbank markets with large banks.
method Mean-field game framework, convex analysis, Monte Carlo simulations.
result Large banks can positively or negatively impact market stability.
Agent-based model shows interbank market's fragility and resilience to crises.
problem Stability of interbank lending market during financial crises.
method Agent-based network model with various pro-cyclical triggers.
result Systemic fragility up to 2008, resilience after 2008, increased crisis speed in 2011.
Model shows how banks' fears of future defaults can cause immediate financial stress.
problem How banks' future default worries cause immediate financial stress.
method Dynamic interbank model with endogenous distress contagion, mark-to-market valuation adjustment, forward-backward approach.
result Distress contagion acts as a stochastic volatility term leading to clustering and down-market spikes.
Systemic risks characterizing the Russian overnight interbank market from the network point of view are analyzed.
The study identifies relationship lending in interbank markets using statistical tests.
problem Lack of consensus on measuring relationship strength in lending between banks.
method Statistical tests to identify relationship lending as significant ties between banks.
result The fraction of relationship lending is stable and lenders impose high interest rates during financial distress.
Dynamic network model forecasts interbank market link formation.
problem Forecasting interbank market link formation with time-varying topologies.
method Dynamic network model with past link existence and node-specific latent variables. Markov dynamics and EM algorithm for estimation.
result Forecasting future link presence and recognition of preferential lending.
Study uses network models to analyze ECB measures' impact on interbank market structure.
problem Analyzing how ECB measures affect interbank market structure and liquidity.
method Used Stochastic Block Model to investigate network structures and model selection.
result ECB measures led to a change in the most likely network structure from bipartite to random, then back to bipartite.
Model measures diversification in Austrian interbank market, showing increased homogeneity.
problem Measuring diversification in Austrian interbank market.
method Dynamic network model with Markov property to capture time dependencies.
result Core banks tend to distribute market exposures more equally over time.
Study uncovers that loan maturity layers in interbank networks are crucial for understanding their structure and functions.
problem Lack of maturity details in interbank lending networks hinders understanding of network structure and functions.
method Used a complete interbank loan contract dataset and applied the layered stochastic block model to investigate multiple maturity layers.
result Optimal maturity granularity reveals specific economic functions, such as liquidity intermediation and financing.
The interbank market has a natural multiplex network representation. We employ a unique database of supervisory reports of Italian banks to the Banca d'Italia that includes all bilateral exposures broken down by maturity and by the secured and unsecured nature of the contract. We find that layers have different topolog…
CDS market redesign makes financial networks more resilient to insolvency.
problem Managing systemic risk in financial networks during insolvency cascades.
method Designing a CDS market to rewire interbank exposures, adding systemic insurance surcharges based on network topology.
result A regulated CDS market makes financial systems more resilient to insolvency.
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted institution to start a cascade depends on an interplay of shock size and connectivity. Fu…
Study optimizes interbank lending and borrowing to reduce systemic risk.
problem Optimizing lending and borrowing in interbank markets to mitigate systemic risk.
method Risk-sensitive mean field games with common noise, convex analysis, Fokker-Planck equations, first hitting time method.
result Risk-averse behavior reduces individual and systemic bank risks.
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further failures. We simulate a model of interbank lending to study the interplay of these …
The paper models reciprocity in interbank markets using a statistical null model.
problem Understanding the importance of individual banks in financial networks.
method Developed an exponential random graph model to account for reciprocal links on both topological and weighted levels.
result Weighted reciprocity in interbank markets is more significant than network size and volume before the financial crisis.
We use daily data on bilateral interbank exposures and monthly bank balance sheets to study network characteristics of the Russian interbank market over Aug 1998 - Oct 2004. Specifically, we examine the distributions of (un)directed (un)weighted degree, nodal attributes (bank assets, capital and capital-to-assets ratio…
The interbank market is considered one of the most important channels of contagion. Its network representation, where banks and claims/obligations are represented by nodes and links (respectively), has received a lot of attention in the recent theoretical and empirical literature, for assessing systemic risk and identi…
Study shows self-exciting shocks increase systemic risk in interbank networks.
problem Systemic risk in interbank lending networks with self-exciting shocks.
method Mean-field model, weak convergence analysis, measure-valued process, law of large numbers.
result Self-exciting shocks increase systemic risk in interbank networks.
We review the main changes in the interbank market after the financial crisis started in August 2007. In particular, we focus on the fixed income market and we analyse the most relevant empirical evidences regarding the divergence of the existing basis between interbank rates with different tenor, such as Libor and OIS…
Optimized financial exposure networks reduce systemic risk by 3.5x without increasing capital requirements.
problem Reducing systemic risk in financial markets without raising capital requirements.
method Optimizing network topology to minimize systemic risk.
result Systemic risk reduced by a factor of approximately 3.5.
The paper examines how banks' exposure to similar risks and direct interbank connections can lead to financial contagion and instability.
problem Financial contagion and instability in interconnected bank networks.
method Analyzes a random network of banks connected through the interbank market, considering different levels of network connectivity and diversification levels.
result Optimal diversification levels for banks' exposure to similar risks are not universally optimal across all levels of network connectivity.
This paper models financial contagion with endogenously determined market liquidity.
problem Financial contagion and its impact on market liquidity during price drops.
method Developed a joint clearing system for interbank payments, asset prices, and market liquidity, with endogenous market capacity.
result Endogenous market liquidity significantly affects system risk during financial contagion.
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 mecha…
Paper detects LIBOR manipulation using Maximum Entropy forecasting.
problem LIBOR manipulation by banks leading to financial penalties.
method Maximum Entropy principle for anomaly detection.
result Robust results against parameter changes for market surveillance.
The Interbank Offered Rate is a vital benchmark interest rate in the financial markets of every country to which financial contracts are tied. In the light of the recent LIBOR manipulation incident, this paper seeks to address the fear that Interbank Offered Rate are entirely controlled by the bank. The paper will focu…
Reverse stress testing reveals key triggers of financial contagion.
problem Identifying the smallest exogenous shock leading to systemic loss.
method Reconstructing interbank network dynamics and analyzing shocks.
result Ranking banks by systemic importance based on smallest shocks.
Interbank credit can create money, leading to financial instability.
problem Systemic instability caused by coordination failures in interbank credit.
method Developed a model of interbank credit coordination under minimal institutions, analyzed through simulation.
result Interbank credit can lead to unbound monetary systems and financial instability.
Spectral analysis detects structural changes in financial networks.
problem Detecting structural transitions in financial networks to assess systemic risk.
method Ensemble properties of spectral radius of random graph models calibrated on real-world evolving networks.
result The spectral deviation captures ongoing topological changes in financial networks.
Using a data set which includes all transactions among banks in the Italian money market, we study their trading strategies and the dependence among them. We use the Fourier method to compute the variance-covariance matrix of trading strategies. Our results indicate that well defined patterns arise. Two main communitie…
Network analysis reveals distinct financial relationships among Euro Area banks.
problem Understanding complex interbank relationships in the Euro Area.
method Multi-layer network approach using granular financial data.
result A more complete picture of the Euro Area interbank market topology.
New method reduces systemic risk underestimation in interbank networks.
problem Underestimation of interbank contagion risk by maximum entropy method.
method Sparse network reconstruction algorithm using maximum entropy method.
result More reliable estimation of systemic risk in interbank networks.
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 ma…
Reduces complexity of financial contagion dynamics on networks.
problem Complexity of financial contagion dynamics on networks.
method Dimensional reduction methods (degree-weighted and spectral reduction).
result Spectral reduction better handles heterogeneous networks.
Paper uses interbank contagion to predict U.S. bank defaults, finding it highly explanatory.
problem Predicting U.S. bank defaults using interbank contagion.
method Regression and neural network models were used to analyze U.S. commercial bank data.
result Interbank contagion is highly explanatory in default prediction, often outperforming established metrics.
This study examines how market makers balance risk and impact in foreign exchange markets.
problem Balancing risk management with market impact in foreign exchange markets.
method An intermediate scenario approach considering both instantaneous and permanent market impact components.
result Transient market impact is more prevalent than previously thought, challenging traditional market impact models.
This review of the book "The Challenge of Financial Stability: A New Model and its Applications" by Goodhart C.A.E. and Tsomocos D.P. highlights the potential of the framework of strategic partial default of banks with credit chain on the interbank market for further theoretical and applied research on financial stabil…
We represent an exchange economy in terms of statistical ensembles for complex networks by introducing the concept of market configuration. This is defined as a sequence of nonnegative discrete random variables {wij} describing the flow of a given commodity from agent i to agent j. This sequence can be arran…
We study the international interbank market through a geometrical and a topological analysis of empirical data. The geometrical analysis of the time series of cross-country liabilities shows that the systematic information of the interbank international market is contained in a space of small dimension, from which a to…