Structural distortions in the Euro interbank market: The role of ‘key players’ during the recent market turmoil

Liberati, Caterina ; Marzo, Massimiliano ; Zagaglia , Paolo ; Zappa, Paola (2012) Structural distortions in the Euro interbank market: The role of ‘key players’ during the recent market turmoil. Bologna: Dipartimento di Scienze economiche, p. 34. DOI 10.6092/unibo/amsacta/4002. In: Quaderni - Working Paper DSE (841). ISSN 2282-6483.
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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.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Liberati, Caterina
Marzo, Massimiliano
Zagaglia , Paolo
Zappa, Paola
Keywords
Market microstructure, network analysis, money markets, asset pricing
Subjects
ISSN
2282-6483
DOI
Deposit date
04 Apr 2014 14:51
Last modified
17 Mar 2015 13:30
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