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Network Analysis and Canada's Large Value Transfer System

Author

Listed:
  • Lana Embree
  • Tom Roberts
Abstract
Analysis of the characteristics and structure of a network of financial institutions can provide insight into the complex relationships and interdependencies that exist in a payment, clearing, and settlement system (PCSS), and allow an intuitive understanding of the PCSS's efficiency, stability, and resiliency. The authors review the literature related to the PCSS network and describe the daily and intraday network structure of payment activity in the Large Value Transfer System (LVTS), which is an integral component of Canada's financial system. The picture that emerges confirms that the LVTS is highly centralized among a few key participants, similar to other PCSSs, based on the network of relationships. This could heighten the systemic importance of these participants, and the susceptibility of the system to financial contagion. There have been small variations in the relative importance of individual banks, but the network-wide pattern of relationships has remained stable from 2004 to 2008, even through the credit crisis.

Suggested Citation

  • Lana Embree & Tom Roberts, 2009. "Network Analysis and Canada's Large Value Transfer System," Discussion Papers 09-13, Bank of Canada.
    • Handle: RePEc:bca:bocadp:09-13
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    File URL: https://www.bankofcanada.ca/wp-content/uploads/2010/01/dp09-13.pdf
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    Citations

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    Cited by:

    1. Mr. Jorge A Chan-Lau, 2010. "Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems," IMF Working Papers 2010/107, International Monetary Fund.
    2. Héctor Pérez Saiz & Gabriel Xerri, 2016. "Credit Risk and Collateral Demand in a Retail Payment System," Discussion Papers 16-16, Bank of Canada.
    3. Fabio Castiglionesi & Noemi Navarro, 2020. "(In)Efficient Interbank Networks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 365-407, March.
    4. Li, Fuchun & Perez-Saiz, Hector, 2018. "Measuring systemic risk across financial market infrastructures," Journal of Financial Stability, Elsevier, vol. 34(C), pages 1-11.
    5. Brunetti, Celso & Harris, Jeffrey H. & Mankad, Shawn, 2023. "Networks, interconnectedness, and interbank information asymmetry," Journal of Financial Stability, Elsevier, vol. 67(C).
    6. Fuchun Li & Héctor Pérez Saiz, 2016. "Measuring Systemic Risk Across Financial Market Infrastructures," Staff Working Papers 16-10, Bank of Canada.
    7. Celso Brunetti & Jeffrey H. Harris & Shawn Mankad, 2021. "Liquidity Networks, Interconnectedness, and Interbank Information Asymmetry," Finance and Economics Discussion Series 2021-017, Board of Governors of the Federal Reserve System (U.S.).
    8. Spiros Bougheas & Alan Kirman, 2015. "Complex Financial Networks and Systemic Risk: A Review," Dynamic Modeling and Econometrics in Economics and Finance, in: Pasquale Commendatore & Saime Kayam & Ingrid Kubin (ed.), Complexity and Geographical Economics, edition 127, pages 115-139, Springer.
    9. Álvaro González & Carmen López & María José Meléndez, 2024. "Análisis de redes aplicado al sistema de pagos de alto valor del BCCh," Working Papers Central Bank of Chile 1021, Central Bank of Chile.
    10. Chabot, Miia & Bertrand, Jean-Louis, 2021. "Complexity, interconnectedness and stability: New perspectives applied to the European banking system," Journal of Business Research, Elsevier, vol. 129(C), pages 784-800.
    11. Eboli, Mario, 2019. "A flow network analysis of direct balance-sheet contagion in financial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 205-233.
    12. Morton O’Kelly, 2015. "Network Hub Structure and Resilience," Networks and Spatial Economics, Springer, vol. 15(2), pages 235-251, June.
    13. Souza, Sergio Rubens Stancato de & Silva, Thiago Christiano & Tabak, Benjamin Miranda & Guerra, Solange Maria, 2016. "Evaluating systemic risk using bank default probabilities in financial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 66(C), pages 54-75.
    14. Ron Berndsen & Ronald Heijmans, 2017. "Risk indicators for financial market infrastructure: from high frequency transaction data to a traffic light signal," DNB Working Papers 557, Netherlands Central Bank, Research Department.
    15. Martinez-Jaramillo, Serafin & Alexandrova-Kabadjova, Biliana & Bravo-Benitez, Bernardo & Solórzano-Margain, Juan Pablo, 2014. "An empirical study of the Mexican banking system’s network and its implications for systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 242-265.
    16. Tom Roberts, 2011. "The Impact of Operational Events on the Network Structure of the LVTS," Discussion Papers 11-7, Bank of Canada.
    17. Seungjin Baek & Kimmo Soramäki & Jaeho Yoon, 2014. "Network Indicators for Monitoring Intraday Liquidity in BOK-Wire+," Working Papers 2014-1, Economic Research Institute, Bank of Korea.
    18. Chabot, Miia & Bertrand, Jean-Louis, 2023. "Climate risks and financial stability: Evidence from the European financial system," Journal of Financial Stability, Elsevier, vol. 69(C).
    19. Benjamin M. Tabak & Sergio R. S. Souza & Solange M. Guerra, 2013. "Assessing Systemic Risk in the Brazilian Interbank Market," Working Papers Series 318, Central Bank of Brazil, Research Department.

    More about this item

    Keywords

    Payment clearing and settlement systems; Financial stability;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    NEP fields

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