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The interbank market is considered one of the most important channels 6 of contagion. Its network representation, where banks and claims/obligations are 7 represented by nodes and links (respectively), has received a lot of attention in 8 the recent theoretical and empirical literature, for assessing systemic risk and 9 identifying systematically important financial institutions. Different types of links, 10 for example in terms of maturity and collateralization of the claim/obligation, can 11 be established between financial institutions. Therefore a natural representation of 12 the interbank structure which takes into account more features of the market, is 13 a multiplex, where each layer is associated with a type of link. In this paper we 14 review the empirical structure of the multiplex and the theoretical consequences of 15 this representation. We also investigate the betweenness and eigenvector centrality 16 of a bank in the network, comparing its centrality properties across different layers 17 and with Maximum Entropy null models.

The interbank market is considered one of the most important channels of contagion. Its network representation, where banks and claims/obligations are represented by nodes and links (respectively), has received a lot of attention in the recent theoretical and empirical literature, for assessing systemic risk and identifying systematically important financial institutions. Different types of links, for example in terms of maturity and collateralization of the claim/obligation, can be established between financial institutions. Therefore a natural representation of the interbank structure which takes into account more features of the market, is a multiplex, where each layer is associated with a type of link. In this paper we review the empirical structure of the multiplex and the theoretical consequences of this representation. We also investigate the betweenness and eigenvector centrality of a bank in the network, comparing its centrality properties across different layers and with Maximum Entropy null models., To appear in the book "Interconnected Networks", A. Garas e F. Schweitzer (eds.), Springer Complexity Series

This special issue of Quantitative Finance collects eight papers on the relation between interlinkages and systemic risk. The papers cover several types of interlinkages and follow different approaches, from agent-based modelling to empirical investigation of large and sometimes confidential data. The special issue collects some of the contributions presented at the international workshop‘Interlinkages and systemic risk ’ , which took place in Ancona (Italy) on 4 – 5 July 2013. The workshop, organized within the research project‘. New tools in the credit network modeling with agents ’ heterogeneity ’ funded by the Institute for New Economic Thinking, was attended by a balanced mix of scholars from academia and economists from central banks and regulatory authorities.

We build a two-period model a la Holmstrom and Tirole (1998) in which bankers have access to a shadow banking technology which allows to liquefy partially illiquid investment projects (e.g. mortgages) and to manufacture shadow collateral (e.g. MBS). We study the bankers' security design of shadow collateral. By seeking simple shadow banking, bankers design shadow collateral which is liquid in all states of nature; in this case, the technology also provides liquidity insurance against aggregate shocks (crisis). Conversely, with complex shadow banking, shadow collateral is designed to be extremely liquid in states without ag- gregate shocks, thereby boosting bankers' leverage, but illiquid in a crisis. We frame this leverage-insurance choice into the modern nancial ecosystem bankers inhabit, characterized by two structural developments. First, the rise of institutional cash pools which manage large cash balances. Their demand for parking space is accommodated by sovereign bonds and shadow collateral. Second, the proliferation of balance sheets with asset-liability mismatches (ALMs), like those of insurance companies and pension funds; these entities have liabilities in xed nominal amount and, in a low yield environment, seek to allocate funds to bankers which deliver leverage-enhanced returns. We show that when the demand for parking space from cash pools - as compared to the supply of sovereign bonds - and the demand for returns from entities with ALMs are high, complex shadow banking is the competitive equilibrium outcome and the economy is prone to massive deleveraging in the case of aggregate shocks. The paper has several implications in terms of central banks' policy (e.g. Reverse Repo Programs), regulation (capital and liquidity) and, more generally, policies aimed at tackling the two structural developments.