  Credit and liquidity risks represent main channels of financial contagion for
interbank lending markets. On one hand, banks face potential losses whenever
their counterparties are under distress and thus unable to fulfill their
obligations. On the other hand, solvency constraints may force banks to recover
lost fundings by selling their illiquid assets, resulting in effective losses
in the presence of fire sales - that is, when funding shortcomings are
widespread over the market. Because of the complex structure of the network of
interbank exposures, these losses reverberate among banks and eventually get
amplified, with potentially catastrophic consequences for the whole financial
system. Building on Debt Rank [Battiston et al., 2012], in this work we define
a systemic risk metric that estimates the potential amplification of losses in
interbank markets accounting for both credit and liquidity contagion channels:
the Debt-Solvency Rank. We implement this framework on a dataset of 183
European banks that were publicly traded between 2004 and 2013, showing indeed
that liquidity spillovers substantially increase systemic risk, and thus cannot
be neglected in stress-test scenarios. We also provide additional evidence that
the interbank market was extremely fragile up to the 2008 financial crisis,
becoming slightly more robust only afterwards.
