Systemic risk on the interbank market

The effect of the interbank network structure on contagion and common shocks

“…paper are the works by Iori et al (2006) and Nier et al (2008). In the model of Iori et al (2006) banks' balance sheets consist of risk-free investments and interbank loans as assets, with deposits, equity and interbank borrowings as liabilities.…”

“…In the model of Iori et al (2006) banks' balance sheets consist of risk-free investments and interbank loans as assets, with deposits, equity and interbank borrowings as liabilities. Banks receive liquidity shocks via deposit fluctuations and pay dividends if possible.…”

Interbank loans, collateral and modern monetary policy

“…Through the prism of an endogenous network model, Bluhm et al (2013) find that increased financial stability can come at the cost of lower provision of financial services to the real economy as there is a trade-off between limiting the effects of potential sequential cascades and fostering banks to invest in non-liquid assets. Iori et al (2006) show that the unsecured interbank network can be unambiguously system-stabilizing if banks are homogeneous in their liquidity or size. They also argue that heterogeneity across banks leads to larger direct and indirect contagion effects, making the whole network structure more fragile.…”

Market procyclicality and systemic risk

“…Indeed, network density has been found to be a major driver of systemic risk (see e.g., Battiston et al, 2012a,b;Tasca and Battiston, 2011). There is also a body of empirical evidence that suggests that financial networks typically display a core-periphery structure with a dense core and a sparsely connected periphery (see e.g., Battiston et al, 2012c;Cont et al, 2011;Iori et al, 2006;Vitali et al, 2011). In the following, our aim is to describe the dynamics of the banks in the core of a core-periphery structure.…”