Resilience of Interbank Market Networks to Shocks

Abstract EN

This paper first constructs a tiered network model of the interbank market.

Then, from the perspective of contagion risk, it studies numerically the resilience of four types of interbank market network models to shocks, namely, tiered networks, random networks, small-world networks, and scale-free networks.

This paper studies the interbank market with homogeneous and heterogeneous banks and analyzes random shocks and selective shocks.

The study reveals that tiered interbank market networks and random interbank market networks are basically more vulnerable against selective shocks, while small-world interbank market networks and scale-free interbank market networks are generally more vulnerable against random shocks.

Besides, the results indicate that, in the four types of interbank market networks, scale-free networks have the highest stability against shocks, while small-world networks are the most vulnerable.

When banks are homogeneous, faced with selective shocks, the stability of the tiered interbank market networks is slightly lower than that of random interbank market networks, whereas, in other cases, the stability of the tiered interbank market networks is basically between that of random interbank market networks and that of scale-free interbank market networks.