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SUMMARY:Network Risk and Key Players: A Structural Analysis of Interbank L
 iquidity - Yuan\, K (London School of Economics)
DTSTART:20140924T080000Z
DTEND:20140924T084500Z
UID:TALK54492@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-authors: Edward Denbee\, Christian Julliard and Ye Li\n\nWe
  model banks' liquidity holding decision as a simultaneous game on an inte
 rbank borrowing network. We show that at the Nash equilibrium\, the contri
 butions of each bank to the network liquidity level and liquidity risk are
  distinct functions of its indegree and outdegree Katz-Bonacich centrality
  measures. A wedge between the planner and the market equilibria arises be
 cause individual banks do not internalize the effect of their liquidity ch
 oice on other banks' liquidity benefit and risk exposure. The network can 
 act as an absorbent or a multiplier of individual banks' shocks. Using a s
 terling interbank network database from January 2006 to September 2010\, w
 e estimate the model in a spatial error framework\, and find evidence for 
 a substantial\, and time-varying\, network risk: in the period before the 
 Lehman crisis\, the network is cohesive and liquidity holding decisions ar
 e complementary and there is a large network liquidity multiplier\; during
  the 2007-08 crisis\, the network becomes less clustered and liquidity hol
 ding less dependent on the network\; after the crisis\, during Quantitativ
 e Easing\, the network liquidity multiplier becomes negative\, implying a 
 lower network potential for generating liquidity. The network impulse-resp
 onse functions indicate that the risk  key players during these periods va
 ry\, and are not necessarily the largest borrowers.\n
LOCATION:Seminar Room 1\, Newton Institute
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