Interbank tiering and money center banks

This paper provides evidence that interbank markets are tiered rather than flat, in the sense that most banks do not lend to each other directly but through money center banks acting as intermediaries. We capture the concept of tiering by developing a core-periphery model, and devise a procedure for...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial intermediation 2014-07, Vol.23 (3), p.322-347
Main Authors: Craig, Ben, von Peter, Goetz
Format: Article
Language:English
Subjects:
Bank management
Bank operations
Banking industry
Banking system
Banks
Bilateral relations
Core
Finance
Interbank markets
Intermediation
Market structure
Modelling
Money center banks
Networks
Studies
Tiering
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper provides evidence that interbank markets are tiered rather than flat, in the sense that most banks do not lend to each other directly but through money center banks acting as intermediaries. We capture the concept of tiering by developing a core-periphery model, and devise a procedure for fitting the model to real-world networks. Using Bundesbank data on bilateral interbank exposures among 2000 banks from 1999 to 2012, we find strong evidence of tiering in the German banking system. This extent of tiering is unlikely to arise in standard random networks. Indeed, we show that bank specialization and balance sheet variables predict how banks position themselves in the interbank market. This link provides a promising avenue for understanding the formation of financial networks.
ISSN:1042-9573
1096-0473
DOI:10.1016/j.jfi.2014.02.003