Interbank Tiering and Money Center Banks

By Ben R. Craig, Goetz von Peter. Social Science Research Network, 2010

409 citations recorded by the source corpus.

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 tting the model to real-world networks. Using Bundesbank data on bilateral interbank exposures among 1800 banks, we find strong evidence of tiering in the German banking system. Econometrically, bank-specific features, such as balance sheet size, predict how banks position themselves in the interbank market. This link provides a promising avenue for understanding the formation of financial networks.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/667580846d083a615562b04972e3fae21823878d

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Citations in the corpus

Mapping the UK interbank system. (2014, positive): “But Craig and von Peter (2014) argue that a core bank should lend to at least one and borrow from at least one peripheral bank.”
Finding the core: Network structure in interbank markets (2014, positive): “Craig and von Peter [13] estimate the Core Periphery model in the German interbank market.”
Efficiency and Stability of a Financial Architecture with Too-Interconnected-to-Fail Institutions (2017, neutral): “International evidence about the structure of interbank markets can be found at Boss, Elsinger, Summer, and Thurner (2004) for Austria; Chang, Lima, Guerra, and Tabak (2008) for Brazil; and Craig and Peter (2009) for Germany.”
Feeling the Heat: Climate Risks and the Cost of Sovereign Borrowing (2021, positive): “…by Aizenman, Hutchison, and Jinjarak (2013), studying 60 economies, find evidence that credit default swap (CDS) spreads for euro area periphery countries were mispriced based on a set of macroeconomic fundamentals (see also Amato 2005; Packer and Zhu 2005; Cecchetti, Mohanty, and Zampolli 2010).”
Transmission channels of systemic risk and contagion in the European financial network (2015, neutral): “In a similar vein, Cocco et al. (2009), documents that interbank networks are typically sparse, because interbank activity is based on relationships, while Craig and von Peter (2014) identify that smaller banks use a limited set of money center banks as intermediaries.”
The Great Recession of 2008-2009: Causes, Consequences and Policy Responses (2010, positive): “Overall, countries that had the biggest credit booms and asset bubbles have had to increase public spending the most (Cecchetti et al. 2010).”
The Pricing of Sovereign Risk and Contagion During the European Sovereign Debt Crisis (2013, positive): “Indeed, Constâncio (2012) makes the point that “Without denying that imprudent fiscal behavior and lack of effort to maintain the competitiveness of countries are deep origins of the European sovereign debt crisis, I will argue that contagion phenomena play a crucial role in exacerbating the problem”