Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 133, Issue 2, Pages 520-538Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2019.02.006
Keywords
Network analysis; Macroprudential regulation; Financial crises; Banking sector
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Funding
- National Science Foundation [IIS-1633158, DMS-1545277, CCE-1540093]
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We study the behavior of the interbank market around the 2008 financial crisis. Using network analysis, we study two network structures, correlation networks based on publicly traded bank returns and physical networks based on interbank lending transactions, among these public and also private banks. While the two networks behave similarly pre-crisis, during the crisis the correlation network shows an increase in interconnectedness, while the physical network highlights a marked decrease in interconnectedness. Moreover, these networks respond differently to monetary and macroeconomic shocks. Physical networks forecast liquidity problems, while correlation networks forecast financial crises. Published by Elsevier B.V.
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