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Interbank tiering and money center banks

Author

Listed:
  • Ben Craig
  • Goetz von Peter
Abstract
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 fitting 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.

Suggested Citation

  • Ben Craig & Goetz von Peter, 2010. "Interbank tiering and money center banks," BIS Working Papers 322, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:322
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    interbank markets; intermediation; networks; tiering; core and periphery; market structure;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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