Identifying relationship lending in the interbank market: A network approach

Abstract

Relationship lending is broadly interpreted as a strong partnership between a lender and a borrower. Nevertheless, we still lack consensus regarding how to quantify the strength of a lending relationship, while simple statistics such as the frequency and volume of loans have been used as proxies in previous studies. Here, we propose statistical tests to identify relationship lending as a significant tie between banks. Application of the proposed method to the Italian interbank networks reveals that the fraction of relationship lending among all bilateral trades has been quite stable and that the relationship lenders tend to impose high interest rates at the time of financial distress.

Extracting the multi-timescale activity patterns of online financial markets

“…In this work, we presented an analytic framework based on non-negative tensor factorization (NTF) to extract temporal activity patterns of financial systems. Despite previous studies on online financial markets recognized the existence of trading activity patterns at specific time scales (e.g., inter-day [12], or intra-day [21][22][23]), we demonstrated-to the best of our knowledge for the first time-that activity patterns coexist at different time scales and depend upon each other. Our methodology allowed us to uncover the hidden multi-timescale patterns of trading activities in an online interbank market (e-MID [20]).…”

“…In this work, we uncover hidden multi-timescale patterns of banks' activities in the Italian online interbank market, e-MID [20]. In previous studies, it has been recognized that there exist activity patterns in banks' financial transactions at a particular time scale, such as inter-day [12] and intra-day scales [21][22][23]. However, it is still unknown whether these patterns coexisting at different time scales are dependent on each other, in which case banks exhibiting a given interday activity pattern are likely to follow a particular intraday pattern.…”

Interbank relationship lending in Colombia

“…Relationship lending is an indicator of trust in the financial system and plays a positive role in financial stability (see Temizsoy, et al, 2015). Monitoring financial institutions' funding behavior is a key task for central banks to maintain the health of the financial markets, especially when markets are under stress (see Kobayashi & Takaguchi, 2018). The evolution of interbank networks' survival ratio may aid financial authorities in their quest for monitoring financial institutions' willingness to exchange funds among them.…”

“…The presence of stable and strong interbank lending relationships is a well-documented fact that is commonly referred to in related literature as interbank customer relationships or interbank relationship lending (see Furfine, 1999, Furfine, 2001, Cocco, et al, 2009, Affinito, 2012, Afonso, et al, 2013, Hüser, 2016, Bräuning & Fecht, 2017, Kobayashi & Takaguchi, 2018). 1 From a theoretical perspective, the emergence of stable and strong interbank lending relations is an expected outcome as well (see Babus, 2012, Hüser, 2016.…”

“…The concentration of relations between banks, in the form of lending and borrowing preference indexes is also common (see Cocco, et al, 2009, Affinito, 2012, Temizsoy, et al, 2015, Capera-Romero, et al, 2015, Bräuning & Fecht, 2017. From a network modeling perspective, a measure of significant number of interbank trades -against a null network modelhas been introduced by Kobayashi and Takaguchi (2018). Martínez (forthcoming) employs an econometric approach to identifying interbank lending relations.…”