In their model, interbank deposits are a primary mechanism for the transmission of liquidity shocks from one bank to another. Allen and Gale compare two canonical network structures: a “complete” network, in which all banks lend to and borrow from all other banks, and an “incomplete” network, in which each bank borrows from only one neighbor and lends to only one other neighbor.
The sustained increase in bank assets was on the back of the 10.5 percent growth in deposits as of end-July 2020. Meanwhile, the capital market reforms are bearing fruit. Bonds have emerged as a major source of funding for banks registering year-on-year growth of 58.3 percent. The total loan portfolio of banks expanded by 5.1 percent year on year in July 2020.