Post by Sapphire Capital on Jul 25, 2012 1:44:46 GMT 4
Here is:
Structural distortions in the Euro interbank market:
The role of ‘key players’ during the recent market turmoil
Caterina Liberati, Massimiliano Marzo, Paolo Zagaglia and Paola Zappa∗
This version: July 24, 2012
Abstract
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 main issues. First, we characterize the division of roles between borrowers
and lenders in long-run relations by providing evidence on network formation at a yearly frequency.
Second, we identify the ‘key players’ in the marketplace and study their behaviour. Key players
are ‘locally-central banks’ within a network that lend (or borrow) large volumes to (from) several
counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions.
Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by
largely asymmetric relations. This implies a clear division of roles between lenders and borrowers.
Second, the key players do not exploit their position of network leaders by imposing opportunistic
pricing policies. We find that only a fraction of the networks composed by big players are
characterized by interest rates that are statistically different from the average market rate throughout
the turmoil period.
Structural distortions in the Euro interbank market:
The role of ‘key players’ during the recent market turmoil
Caterina Liberati, Massimiliano Marzo, Paolo Zagaglia and Paola Zappa∗
This version: July 24, 2012
Abstract
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 main issues. First, we characterize the division of roles between borrowers
and lenders in long-run relations by providing evidence on network formation at a yearly frequency.
Second, we identify the ‘key players’ in the marketplace and study their behaviour. Key players
are ‘locally-central banks’ within a network that lend (or borrow) large volumes to (from) several
counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions.
Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by
largely asymmetric relations. This implies a clear division of roles between lenders and borrowers.
Second, the key players do not exploit their position of network leaders by imposing opportunistic
pricing policies. We find that only a fraction of the networks composed by big players are
characterized by interest rates that are statistically different from the average market rate throughout
the turmoil period.
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