The network structure and systemic risk in the Japanese interbank market

This paper contributes to the existing systemic risk literature by assessing the network structure of bilateral exposures in the Japanese interbank market, which comprises call and bankers’ acceptance markets. The market participants are restricted to financial institutions domiciled in Japan. We analyze the systemic risk implied in the Japanese interbank network based on various network measures such as directed graphs, centrality measures, degree distributions, and modified susceptible-infected-removable (SIR) models. The main findings are as follows: First, betweenness centrality has the highest discriminative power among three centrality measures in selecting systemically important banks in the Japanese financial system. Second, the topology structure of the Japanese interbank network exhibits characteristics similar to the small-world or scale-free networks, depending on the region of the degree distributions. Third, three mega-bank groups currently designated as globally systemically important banks (G-SIBs) overwhelm others in terms of interconnectedness.