Working papers

The ESRB Working Paper Series is run by the Advisory Scientific Committee. Its purpose is to collate high-quality research on systemic risk and macroprudential policy, thus informing the policymaking activities of the ESRB.

Submissions to the Working Paper Series are welcomed when at least one co-author is affiliated to the ESRB or an ESRB member institution, or when the paper has been presented at an ESRB event. To submit a paper for consideration, email a pdf file to wpseries@esrb.europa.eu

Any views expressed in working papers are those of the authors and do not necessarily reflect the official stance of the ESRB, its member institutions, or any institution to which the authors may be affiliated.

No. 54
15 September 2017
Working paper no. 54: Networks of counterparties in the centrally cleared EU-wide interest rate derivatives market by Paweł Fiedor, Sarah Lapschies and Lucia Országhová


JEL Classification

G10 : Financial Economics→General Financial Markets→General

L14 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Transactional Relationships, Contracts and Reputation, Networks

G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors


We perform a network analysis of the centrally cleared interest rate derivatives market in the European Union, by looking at counterparty relations within both direct (house) clearing and client clearing. Since the majority of the gross notional is transferred within central counterparties and their clearing members, client clearing is often neglected in the literature, despite its significance in terms of net exposures. We find that the client clearing structure is very strongly interconnected and contains on the order of 90% of the counterparty relations in the interest rate derivatives market. Moreover, it is more diverse in terms of geography and sectors of the financial market the counterparties are associated with. Client clearing is also significantly more volatile in time than direct clearing. These findings underline the importance of analysing the structure and stability of both direct and client clearing of the interest rate derivatives market in Europe, to improve understanding of this important market and potential contagion mechanisms within it.

No. 53
1 August 2017
Working paper no. 53: Two Big Distortions: Bank Incentives for Debt Financing, by Jesse Groenewegen, Peter Wierts


JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

H25 : Public Economics→Taxation, Subsidies, and Revenue→Business Taxes and Subsidies


Systemically important banks are subject to at least two departures from the neutrality of debt versus equity financing: the tax deductibility of interest payments and implicit funding subsidies. This paper fills a gap in the literature by comparing their mechanism and interaction within a common analytical framework. Findings indicate that both the tax shield and implicit funding subsidy remain large, in the order of up to 1 percent of GDP, despite decreases in recent years. But the underlying mechanisms differ. The tax shield incentivises debt financing as it reduces tax payments to the government. The implicit funding subsidy incentivises debt financing as it lowers private bankruptcy costs. This funding subsidy is passed on to other bank stakeholders. It therefore provides incentives for increases in balance sheet size and risk taking. This, in turn, increases the value of the tax shield. Overall, these results help to explain why systemically important banks are highly leveraged.

No. 52
14 July 2017
Working paper no. 52: Asset Encumbrance, Bank Funding and Fragility, by Toni Ahnert, Kartik Anand, Prasanna Gai, James Chapman
No. 51
14 July 2017
Working paper no. 51: The missing links: A global study on uncovering financial network structures from partial data, by Kartik Anand, Iman van Lelyveld, Ádám Banai, Soeren Friedrich, Rodney Garratt, et al.
No. 50
30 June 2017
Working paper no. 50: Equity versus bail-in debt in banking: an agency perspective, by Caterina Mendicino, Kalin Nikolov, Javier Suarez
No. 49
30 June 2017
Working paper no. 49: Wholesale funding dry-ups, by Christophe Pérignon, David Thesmar, Guillaume Vuillemey
No. 48
14 June 2017
Working paper no. 48: Banking integration and house price comovement, by Augustin Landier, David Sraer, David Thesmar
No. 47
14 June 2017
Working paper no. 47: The real effects of bank capital requirements, by Henri Fraisse, Mathias Lé, David Thesmar
No. 46
9 June 2017
Working paper no. 46: Simulating fire-sales in a banking and shadow banking system, by Susanna Calimani, Grzegorz Hałaj, Dawid Żochowski
No. 45
9 June 2017
Working paper no. 45: Use of unit root methods in early warning of financial crises, by Timo Virtanen, Eero Tölö, Matti Virén, Katja Taipalus
No. 44
2 May 2017
Working paper no. 44: Compressing over-the-counter markets, by Marco D’Errico, Tarik Roukny
No. 43
2 May 2017
Working paper no. 43: Coherent financial cycles for G-7 countries: Why extending credit can be an asset, by Yves S. Schüler, Paul P. Hiebert, Tuomas A. Peltonen
No. 42
3 April 2017
Working paper no. 42: A dynamic theory of mutual fund runs and liquidity management, by Yao Zeng
No. 41
3 April 2017
Working paper no. 41: Financial frictions and the real economy, by Mario Pietrunti
No. 40
15 March 2017
Working paper no. 40: Mapping the interconnectedness between EU banks and shadow banking entities, by Jorge Abad, Marco D’Errico, Neill Killeen, Vera Luz, Tuomas Peltonen, et al.
No. 39
14 March 2017
Working paper no. 39: Decomposing financial (in)stability in emerging economies, by Etienne Lepers, Antonio Sánchez Serrano
No. 38
10 March 2017
Working paper no. 38: Flight to liquidity and systemic bank runs, by Roberto Robatto
No. 37
10 March 2017
Working paper no. 37: SRISK: a conditional capital shortfall measure of systemic risk, by Christian Brownlees, Robert Engle
No. 36
13 February 2017
Working paper no. 36: Credit conditions, macroprudential policy and house prices, by Robert Kelly, Fergal McCann, Conor O'Toole
No. 35
13 February 2017
Working paper no. 35: Addressing the safety trilemma: a safe sovereign asset for the eurozone, by Ad van Riet
No. 34
13 February 2017
Working paper no. 34: Resolution of international banks: can smaller countries cope?, by Dirk Schoenmaker
No. 33
22 December 2016
Working paper no. 33: How does risk flow in the credit default swap market?, by Marco D'Errico, Stefano Battiston, Tuomas Peltonen, Martin Scheicher
No. 32
21 December 2016
Working paper no. 32: Financial contagion with spillover effects: a multiplex network approach, by Gustavo Peralta, Ricardo Crisóstomo
No. 31
21 December 2016
Working paper no. 31: The (unintended?) consequences of the largest liquidity injection ever, by Matteo Crosignani, Miguel Faria-e-Castro, Luís Fonseca
No. 30
17 November 2016
Working paper no. 30: Exposure to international crises: trade vs. financial contagion, by Everett Grant
No. 29
14 November 2016
Working paper no. 29: Predicting vulnerabilities in the EU banking sector: the role of global and domestic factors, by Markus Behn, Carsten Detken, Tuomas Peltonen and Willem Schudel
No. 28
20 October 2016
Working paper no. 28: Financial intermediation, resource allocation, and macroeconomic interdependence, by Galip Kemal Ozhan
No. 27
20 October 2016
Working paper no. 27: (Pro?)-cyclicality of collateral haircuts and systemic illiquidity, by Florian Glaser and Sven Panz
No. 26
20 October 2016
Working paper no. 26: Using elasticities to derive optimal bankruptcy exemptions, by Eduardo Dávila
No. 25
19 September 2016
Working paper no. 25: Macroeconomic effects of secondary market trading, by Daniel Neuhann
No. 24
19 September 2016
Working paper no. 24: Macroprudential policy with liquidity panics, by Daniel Garcia-Macia and Alonso Villacorta
No. 23
19 September 2016
Working paper no. 23: Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds, by Sergey Chernenko and Adi Sunderam
No. 22
19 September 2016
Working paper no. 22: Arbitraging the Basel securitization framework: Evidence from German ABS investment, by Matthias Efing
No. 21
19 September 2016
Working paper no. 21: ESBies: Safety in the tranches, by Markus K. Brunnermeier, Sam Langfield, Marco Pagano, Ricardo Reis, Stijn Van Nieuwerburgh and Dimitri Vayanos
No. 20
8 August 2016
Working paper no. 20: Multiplex interbank networks and systemic importance – An application to European data, by Iñaki Aldasoro and Iván Alves
No. 19
25 July 2016
Working paper no. 19: Strategic complementarity in banks’ funding liquidity choices and financial stability, by André Silva
No. 18
13 July 2016
Working paper no. 18: Cyclical investment behavior across financial institutions, by Yannick Timmer
No. 17
12 July 2016
Working paper no. 17: Assessing the costs and benefits of capital-based macroprudential policy, by Markus Behn, Marco Gross and Tuomas Peltonen
No. 16
28 June 2016
Working paper no. 16: Bank recapitalizations and lending: A little is not enough, by Timotej Homar
No. 15
28 June 2016
Working paper no. 15: Credit default swap spreads and systemic financial risk, by Stefano Giglio
No. 14
28 June 2016
Working paper no. 14: Catering to investors through product complexity, by Claire Célérier and Boris Vallée
No. 13
9 June 2016
Working paper no. 13: Banks' exposure to interest rate risk and the transmission of monetary policy, by Matthieu Gomez, Augustin Landier, David Sraer and David Thesmar
No. 12
3 June 2016
Working paper no. 12: Extreme risk interdependence, by Arnold Polanski and Evarist Stoja
No. 11
2 May 2016
Working paper no. 11: Bank exposures and sovereign stress transmission, by Carlo Altavilla, Marco Pagano and Saverio Simonelli
No. 10
2 May 2016
Working paper no. 10: Systemic risk in clearing houses: Evidence from the European repo market, by Charles Boissel, François Derrien, Evren Örs and David Thesmar
No. 9
2 May 2016
Working paper no. 9: Regime-dependent sovereign risk pricing during the euro crisis, by Anne-Laure Delatte, Julien Fouquau and Richard Portes
No. 8
20 April 2016
Working paper no. 8: Double bank runs and liquidity risk management, by Filippo Ippolito, José-Luis Peydró, Andrea Polo and Enrico Sette
No. 7
12 April 2016
Working paper no. 7: Bail-in expectations for European banks: Actions speak louder than words, by Alexander Schäfer, Isabel Schnabel and Beatrice Weder di Mauro
No. 6
24 March 2016
Working paper no. 6: Cross-country exposures to the Swiss franc, by Agustín S. Bénétrix and Philip R. Lane
No. 5
24 March 2016
Working paper no. 5: Securities trading by banks and credit supply: Micro-evidence from the crisis, by Puriya Abbassi, Rajkamal Iyer, José-Luis Peydró and Francesc R. Tous
No. 4
11 March 2016
Working paper no. 4: Capital market financing, firm growth, and firm size distribution, by Tatiana Didier, Ross Levine and Sergio L. Schmukler
No. 3
11 March 2016
Working paper no. 3: How excessive is banks’ maturity transformation?, by Anatoli Segura and Javier Suarez
No. 2
23 February 2016
Working paper no. 2: Macroprudential supervision: From theory to policy, by Dirk Schoenmaker and Peter Wierts
No. 1
23 February 2016
Working paper no. 1: Macro-financial stability under EMU, by Philip R. Lane