ECB researchers on market-based networks and bank exposures

In a European Central Bank (ECB) research paper, researchers compare networks constructed using five commonly used methods and publicly available daily market data to networks based on reported exposures along several dimensions of the balance sheet, i.e., loans, bonds, equity.

Their findings suggest that while the global network structure remains stable, individual exposures are more dynamic. The main message from the regression analysis is that the market-based networks do their job relatively well, however, various market-based networks capture different types of exposures.

All the measures reflect common portfolios of bonds and loans. Equity-based measures match better direct and indirect equity, while credit-risk measures capture direct bonds. None of the measures robustly identify direct interbank lending.

Read the full paper

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