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Title: Identification of core-periphery networks in the interbank market Authors:  Christian Pigorsch - Friedrich Schiller University Jena (Germany) [presenting]
Abstract: The recent financial crisis revealed that the interbank market structure plays an important role for the formation of systemic risk. It is thus not surprising that research on the topology of the interbank network has developed tremendously over the past few years. Most of these empirical and theoretical studies point towards a core-periphery network structure of the interbank market. In order to assess the systemic risk as well as the financial stability of the interbank network, it is therefore of interest to identify banks that belong to the core and those that belong to the periphery. The identification of the underlying network structure, however, is not trivial, as the observed interbank linkages usually do not directly coincide with a core-periphery network. Fitting a core-periphery model to an empirical network is therefore an important task. The objective is to provide a novel approach for the identification of the German interbank network from the observed network by incorporating information about the strength of the network linkages, e.g. information on the bilateral liabilities (exposures) of banks. In particular, we develop a model that attaches to each linkage a probability that signals the importance of the link.