A0780
Title: Do market-based network reflect true exposures between banks?
Authors: Madina Karamysheva - Higher School of Economics (Russia) [presenting]
Ben Craig - Federal Reserve Bank of Cleveland (United States)
Dilyara Salakhova - ECB (Germany)
Abstract: Due to the lack of or poor access to the data on real exposures between banks, several methods have been proposed to reconstruct a network using market data. However, what does this market-based network represent? We replicate several well-known methods to construct market-based networks. Next, we build networks based on true exposures through loans and securities holdings. Then we provide graphical analysis as well as a comparison of network characteristics across different types of networks and different time periods. The regression analysis sheds light on which balance-sheet exposures better explain the links perceived by the market. The findings suggest that while global network structure remains stable, networks evolve over time. Regression analysis shows that the market identifies two banks as connected when they have similar business models defined by overlapping portfolios more than exposures through lending or securities holdings.