Identifying central bank liquidity super-spreaders in interbank funds networks

Carlos León, Clara Machado and Miguel Sarmiento ()

Journal of Financial Stability, 2018, vol. 35, issue C, 75-92

Abstract: We model the allocation of central bank liquidity among the participants of the interbank market by using network analysis’ metrics. Our analytical framework considers that a super-spreader simultaneously excels at borrowing and lending central bank's liquidity for the whole network, as measured by financial institutions’ hub centrality and authority centrality, respectively. Evidence suggests that the Colombian interbank funds market exhibits an inhomogeneous and hierarchical network structure, akin to a core-periphery organization, in which a few financial institutions fulfill the role of central bank's liquidity super-spreaders. Our results concur with evidence from other interbank markets and other financial networks regarding the flaws of traditional direct financial contagion models based on homogeneous and non-hierarchical networks. Also, concurrent with literature on lending relationships in interbank markets, we confirm that the probability of being a super-spreader is mainly determined by financial institutions’ size, but leverage and lending concentration as well. We provide additional elements for the implementation of monetary policy and for safeguarding financial stability.

Keywords: Interbank markets; Networks; Super-spreaders; Central bank liquidity; Financial stability (search for similar items in EconPapers)
JEL-codes: E5 G2 L14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Related works:
Working Paper: Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks (2015)
Working Paper: Identifying central bank liquidity super-spreaders in interbank funds networks (2014)
Working Paper: Identifying central bank liquidity super-spreaders in interbank funds networks (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:35:y:2018:i:c:p:75-92

DOI: 10.1016/j.jfs.2016.10.008

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