Journal of Financial Stability Vol. 67 2023
Networks, interconnectedness, and interbank information asymmetry
Abstract
We explore interconnectedness in the interbank overnight lending market and propose the liquidity network and the urgent borrower network which capture the urgency to trade. The liquidity network connects the initiating party in a trade to the passive party, while the urgent borrower network connects passive sellers (lenders) to urgent buyers (borrowers). Along with the buyer/seller trading network, we show these networks complement each other, revealing valuable information that improves short-term forecasts of soft and hard information and country-specific yield spreads. Connectivity increases in these networks during raises volatility and boosts volume, revealing the dual nature of interconnectedness—too much interconnectedness may increase systemic risk, but too little may impede market functioning.
- DOI
- 10.1016/j.jfs.2023.101163
- Volume
- 67
- Pages
- 101163
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref