Network topology of the Euro Area interbank market

TL;DR

This paper introduces a multi-layer network model of the Euro Area interbank market, capturing various financial relationships to better understand system structure and support risk management.

Contribution

It presents a novel multi-layer network approach to represent and analyze the Euro Area banking system using granular data from multiple sources.

Findings

Multi-layer network reveals diverse interbank relationships.

Enhanced understanding of systemic risk and market topology.

Supports better financial policy and risk management.

Abstract

The rapidly increasing availability of large amounts of granular financial data, paired with the advances of big data related technologies induces the need of suitable analytics that can represent and extract meaningful information from such data. In this paper we propose a multi-layer network approach to distill the Euro Area (EA) banking system in different distinct layers. Each layer of the network represents a specific type of financial relationship between banks, based on various sources of EA granular data collections. The resulting multi-layer network allows one to describe, analyze and compare the topology and structure of EA banks from different perspectives, eventually yielding a more complete picture of the financial market. This granular information representation has the potential to enable researchers and practitioners to better apprehend financial system dynamics as well as to support financial policies to manage and monitor financial risk from a more holistic point of view.