Network structure analysis of the Brazilian interbank market

Thiago Silva (), Sergio Rubens Stancato de Souza and Benjamin Tabak

Emerging Markets Review, 2016, vol. 26, issue C, 130-152

Abstract: In this paper, we provide a detailed analysis of the roles financial institutions play within the Brazilian interbank market using a network-based approach. We present a novel methodology to assess how compliant networks are to being perfect core-periphery structures. The approach is flexible, allowing for the identification of multiple cores in networks. We verify that the interbank network presents a high disassortative mixing pattern, suggesting preferential attachment of highly connected financial institutions to others with few connections. We use the clustering coefficient to assess the substitutability of financial institutions. We find that large banking institutions are counterparties that are easily substitutable in normal times. We uncover that the rich-club effect is strongly present in the community comprising the large banking institutions, as they normally form near-clique structures. Since they play the role of liquidity providers in the interbank market, this interconnectedness effectively endows the network with robustness, as participants that are with liquidity issues can easily substitute counterparties that are liquidity suppliers. This substitutability will likely vanish during periods of stress, increasing systemic risk and the likelihood of cascade failures.

Keywords: Network analysis; Core-periphery; Complex network; Interbank market; Systemic risk; Financial stability (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (59)

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Working Paper: Network Structure Analysis of the Brazilian Interbank Market (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:26:y:2016:i:c:p:130-152

DOI: 10.1016/j.ememar.2015.12.004

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