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Identifying Complex Core-Periphery Structures in the Interbank Market

Jose Carreno () and Rodrigo Cifuentes

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper proposes a framework to identify the structure of a financial network and its evolution of over time, and presents an application to an interbank market with complete actual data. The framework is based on a methodology popular in the social network literature, namely the Stochastic Blockmodelling (SBM), which, we argue, is more general, transparent and richer in results than other proposed methodologies. In particular, we can identify the presence of multiple cores and peripheries, as well as different ways of interaction between them. We find that such a varied coreperiphery structure exists in almost all periods for different instruments analyzed. Also, in the case of term deposits, which account for two-thirds of interbank exposures, we find that far from being static, the structure underwent a transition in the period 2009-2015, with the core increasing its size. We also show that facts revealed by our approach cannot be observed in metrics commonly used to describe networks. Finally, we describe how the elements identified by our method can be used to single out sources and channels of transmission of systemic risk in a network of banks.

New Economics Papers: this item is included in nep-net
Date: 2017-12
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