Topology matters: why regulators may be missing a trick
Bank networks evolve to be liquid but unstable, new research shows
Networks of banks can automatically organise themselves to be highly efficient and liquid, but also unstable – and regulation should take this into account, according to economists at the Central Bank of Brazil and the Catholic University of Brasilia.
Thiago Silva, Marcos da Silva and Benjamin Tabak used interbank lending data gathered by the Brazilian central bank to construct a network of liquidity flows through the country's banking sector. Their results will be published in December in the J
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