  Assessing the stability of economic systems is a fundamental research focus
in economics, that has become increasingly interdisciplinary in the currently
troubled economic situation. In particular, much attention has been devoted to
the interbank lending market as an important diffusion channel for financial
distress during the recent crisis. In this work we study the stability of the
interbank market to exogenous shocks using an agent-based network framework.
Our model encompasses several ingredients that have been recognized in the
literature as pro-cyclical triggers of financial distress in the banking
system: credit and liquidity shocks through bilateral exposures, liquidity
hoarding due to counterparty creditworthiness deterioration, target leveraging
policies and fire-sales spillovers. But we exclude the possibility of central
authorities intervention. We implement this framework on a dataset of 183
European banks that were publicly traded between 2004 and 2013. We document the
extreme fragility of the interbank lending market up to 2008, when a systemic
crisis leads to total depletion of market equity with an increasing speed of
market collapse. After the crisis instead the system is more resilient to
systemic events in terms of residual market equity. However, the speed at which
the crisis breaks out reaches a new maximum in 2011, and never goes back to
values observed before 2007. Our analysis points to the key role of the crisis
outbreak speed, which sets the maximum delay for central authorities
intervention to be effective.
