Network centrality and funding rates in the e-MID interbank market

Abstract

This paper empirically investigates the role of banks' network centrality in the interbank market on their funding rates. Specifically we analyze transaction data from the e-MID market, the only electronic interbank market in the Euro Area and US, over the period [2006][2007][2008][2009] that encompasses the global financial crisis. We show that interbank spreads are significantly affected by both local and global measures of connectedness. The effects of network centrality increased as the financial crisis evolved. Local measures show that having more links increases borrowing costs for borrowers and reduces premia for lenders. For global network centrality, borrowers receive a significant discount if they increase their intermediation activity and become more central, while lenders pay in general a premium (i.e. receive lower rates) for centrality. This provides evidence of the 'too-interconnected-to-fail' hypothesis.

Computational analysis of structural properties of economic and financial networks

“…Specifically, the authors investigated the main borrower role of Demirbank in the crash of the banking system in 2000. A similar study of interbank networks can be found in [136] where data from the e-MID market in the Euro Area and US have been analyzed. Another study using centrality measures can be found in [130].…”

Time series analysis of S&P 500 index: A horizontal visibility graph approach

“…Mantegna and his co-authors [7,11,24,30,38,46] were the first who proposed that techniques and tools from network theory can be applied to uncover the true nature of the underlying structure of financial markets. Many more researchers have followed, see [2,5,6,17,23,[43][44][45] among numerous others.…”

Understanding the World Economy in Terms of Networks: A Survey of Data-Based Network Science Approaches on Economic Networks

“…In Iori et al [76], Temizsoy et al [77], and Iori et al [78] the e-MID market, an electronic market for interbank deposits in the USA and the Eurozone, has been studied. Interestingly, Iori et al [78] showed that the e-MID market network structure corresponds to a random network if studied for a daily time scale, however, the structure of the market becomes non-random for longer aggregation periods.…”

“…Interestingly, Iori et al [78] showed that the e-MID market network structure corresponds to a random network if studied for a daily time scale, however, the structure of the market becomes non-random for longer aggregation periods. In Temizsoy et al [77] the local and global measures of network centrality in the e-MID network have been studied for the years 2006-2009, which includes the global financial crisis in 2008. One interesting result of their study is that interbank spreads are significantly affected by measures of connectedness for local and global measures.…”