Network formation in the interbank money market: An application of the actor-oriented model |
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| Affiliation: | 1. Institute for Quantitative Business and Economics Research (QBER), University of Kiel, Heinrich-Hecht-Platz 9, 24118 Kiel, Germany;2. Department of Economics, University of Kiel, Olshausenstr. 40, 24118 Kiel, Germany;3. Banco de España Chair in Computational Economics, University Jaume I, Campus del Riu Sec, 12071 Castellon, Spain;1. Universidade Estadual Paulista, 17602-496 Tupã, SP, Brazil;2. Universidade de São Paulo, 13560-970 São Carlos, SP, Brazil;1. Defence Science and Technology Group, Department of Defence, Australia;2. School of Psychological Sciences, The University of Melbourne, Australia;3. School of Management, The University of Los Andes, Colombia;1. Department of Political Science, The Ohio State University, 2140 Derby Hall, 154 N. Oval Mall, Columbus, OH 43210, United States;2. Department of Political Science, Boston University, 232 Bay State Road, Boston, MA 02215, United States;1. Department of Health Promotion & Behavioral Sciences, School of Public Health, The University of Texas Health Science Center at Houston, 7000 Fannin Street, UCT 2514, Houston, TX 77030-5401, United States;2. Department of Sociology, University of Groningen, Grote Rozenstraat 31, 9712 TG Groningen, The Netherlands;3. Nuffield College, University of Oxford, UK;4. Institute for Prevention Research, Department of Preventive Medicine, Keck School of Medicine, University of Southern California, Los Angeles, CA 90032-3628, United States;1. Bank of Canada, Canada;2. European Central Bank, Germany;3. University of Bern, Study Center Gerzensee, Switzerland;1. Department of Sociology, Macquarie University, Australia;2. LINKS Center for Social Network Analysis, Department of Management, University of Kentucky, United States;3. Department of Sociology and Social Research, University of Trento, Italy |
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| Abstract: | This paper investigates the driving forces behind banks’ link formation in the interbank market by applying the stochastic actor oriented model (SAOM). Our data consists of quarterly networks constructed from the transactions on an electronic trading platform (e-MID) for interbank credit over the period from 2001 to 2010. The analysis strongly supports the hypothesis that the existence and extent of past credit relationships is a major determinant of credit provision (i.e., link formation) in subsequent periods. We also find explanatory power of size-related characteristics, but little influence of past interest rates. The actor-based analysis, thus, confirms the prevalent view that interbank credit is mainly determined by lasting business relationships and less so by competition for the best price (interest rate). Our findings also show that topological features exert a certain influence on the network formation process. The major changes found for the period after the onset of the financial crisis are that: (1) large banks and those identified as ‘core’ intermediaries became even more sought of as counterparties and (2) indirect counterparty risk appeared to be more of a concern as we find a higher tendency to avoid indirect exposure as indicated by clustering effects. |
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| Keywords: | Interbank market Network formation Financial crisis |
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