Identifying a Core-Periphery Structure in the Italian Interbank Market.†

In this paper we investigate the core-periphery structure of the Italian interbank market. We construct quarterly networks from a dataset containing all overnight interbank transactions on the e-MID trading platform from January 1999 to December 2010. In order to shed light on the hierarchical structure of the banking network, we estimate different versions of a core-periphery model. Our main ndings are: (1) A core-periphery structure provides a better t for these interbank data than alternative network models. (2) The identi ed core is quite stable over time, consisting of roughly 28% of all banks before the global nancial crisis and 23% afterwards. (3) The majority of core banks can be classi ed as intermediaries, i.e. as banks both borrowing and lending money in the market. (4) Allowing for asymmetric `coreness' with respect to lending and borrowing considerably improves the t, and reveals more concentration in borrowing than lending activity of money center banks. During the nancial crisis of 2008, the reduction of interbank lending was mainly due to core banks' reducing their numbers of active outgoing links. †Funding by the Leibniz foundation is gratefully acknowledged. ‡Kiel Institute for the World Economy, Hindenburgufer 66, 24105 Kiel. Correspondence: [email protected], [email protected] §Department of Economics, University of Kiel, Olshausenstr. 40, 24118 Kiel ¶Banco de España Chair in Computational Economics, University Jaume I , Campus del Riu Sec, 12071 Castellón.