Systemic risk and financial networks

Abstract

This thesis investigates the interbank relations of Turkish banks with each other and foreign banks abroad. In the first chapter, we focus on the interbank relations between domestic banks and study the effects of bank ownership structure on the in terbank network structure. During the sample period of 2003-2017, we observe that foreign and state-owned banks play dominant role in shaping the network structure. Foreign banks, in particular, have a higher coreness vector in derivative exposures through their comparative advantage in offsetting derivative transactions. More over, our findings indicate that when a foreign investor acquires a domestic bank, the network structure of the acquired bank changes considerably. We also present evidence that local and Basel III regulations play a significant role in the formation of the network structure through liquidity channel. In the second chapter, we focus on the interbank relations between banks in Turkey and foreign banks abroad for 2014-2018 period. Funding from foreign banks in repo, deposit and loan type is an important financing channel for domestic banks. For hedging currency risk, domestic banks are also making derivative transactions with foreign counterparties. We docu ment several network statistics and analyze the similarities of bank rankings in these statistics. Moreover, we examine the similarities between different instrument-level networks as repo, loan, deposit and derivatives. By differentiating foreign banks as the banks having shares in domestic banks and others and the banks that work ac cording to islamic principles and others, we investigate the evolvement of interbank relations between these groups.