The Structure and Resilience of the European Interbank Market

44 Pages Posted: 5 Nov 2020

See all articles by Ivan Alves

Ivan Alves

affiliation not provided to SSRN

Stijn Ferrari

National Bank of Belgium

Pietro Franchini

affiliation not provided to SSRN

Jean-Cyprien Heam

Banque de France

Pavol Jurca

affiliation not provided to SSRN

Sebastiano Laviola

affiliation not provided to SSRN

Sam Langfield

European Central Bank

Franka Liedorp

affiliation not provided to SSRN

Antonio Sánchez

affiliation not provided to SSRN

Santiago Tavolaro

Independent

Guillaume Vuillemey

HEC Paris - Finance Department

Date Written: September, 2013

Abstract

Financial institutions are connected to each other by a series of bilateral transactions. In normal times, institutions’ connections may result in efficient risk transfer. But in crises, connections can facilitate contagion – as initial problems lead to chains of defaults and liquidity shortages – sparked by shocks which might arise within the financial system or from the real economy. Institutions are also interconnected in indirect ways, since they are exposed to common risk factors that can result in concurrent losses. For example, most banks extend loans secured by real estate: they are thus collectively exposed to falls in house prices. Resulting bank distress can then exacerbate initial problems: banks might simultaneously sell collateral (houses), thus worsening downward price spirals. Less tangibly, institutions can also be connected through perceptions of counterparties’ creditworthiness. Given uncertainty, financial institutions may in general become reluctant to lend to each other and hoard liquidity. Potential for contagion due to interconnectedness is a key component of systemic risk. As a first step towards understanding the mechanisms of contagion, this paper abstracts from complex indirect connections between banks, and rather focuses on direct linkages between 53 large EU banks, based on unique data on interbank exposures collected by national regulators as of the end of 2011.

Keywords: interbank market, resilience, structure, contagion

JEL Classification: G01, E58, G21

Suggested Citation

Alves, Ivan and Ferrari, Stijn and Franchini, Pietro and Heam, Jean-Cyprien and Jurca, Pavol and Laviola, Sebastiano and Langfield, Sam and Liedorp, Franka and Sánchez, Antonio and Tavolaro, Santiago and Vuillemey, Guillaume, The Structure and Resilience of the European Interbank Market (September, 2013). ESRB: Occasional Paper Series No. 2013/03, Available at SSRN: https://ssrn.com/abstract=3723333

Ivan Alves (Contact Author)

affiliation not provided to SSRN

No Address Available

Stijn Ferrari

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Pietro Franchini

affiliation not provided to SSRN

Jean-Cyprien Heam

Banque de France ( email )

Paris
France

Pavol Jurca

affiliation not provided to SSRN

No Address Available

Sebastiano Laviola

affiliation not provided to SSRN

Sam Langfield

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Franka Liedorp

affiliation not provided to SSRN

No Address Available

Antonio Sánchez

affiliation not provided to SSRN

No Address Available

Santiago Tavolaro

Independent

Guillaume Vuillemey

HEC Paris - Finance Department ( email )

1 rue de la Libération
Paris, Not Applicable 78351
France
+33660204275 (Phone)

HOME PAGE: http://sites.google.com/site/guillaumevuillemey/home

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