Working Paper: CEPR ID: DP17263
Authors: Franklin Allen; Giovanni Covi; Xian Gu; Oskar Kowalewski; Mattia Montagna
Abstract: This study documents significant differences in the size of interbank markets across countries. We argue the differences can be explained by the trust in the financial systems, proxied by the history of banking crises and failures. Banks from a country with lower trust tend to have lower interbank borrowing. Using a proprietary dataset on bilateral exposures, we investigate the Euro Area interbank network and find the effect of trust relies on the interbank network structure. Core banks as intermediaries are more significantly influenced by trust while being more exposed in a community can mitigate the negative effect of low trust
Keywords: interbank market; trust; networks; centrality; community detection
JEL Codes: G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interbank network structure (F33) | trust in the banking system (G21) |
| trust (G21) | interbank borrowing (core banks) (G21) |
| trust (G21) | interbank borrowing (peripheral banks) (F65) |
| longer histories of banking crises (F65) | trust in the banking system (G21) |
| trust in the banking system (G21) | interbank borrowing (G21) |
| trust in the banking system (G21) | interbank market size (F33) |