Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks

C.E. Leon Rincon, C. Machado, N.M. Sarmiento Paipilla

Research output: Working paperDiscussion paperOther research output

Abstract

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 super-spreaders because of their simultaneous importance as global borrowers and lenders of central bank money. 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. Our research contributes by (i) examining and characterizing the actual connective structure of interbank funds networks; (ii) identifying those financial institutions that may be considered the most important conduits for monetary policy transmission, and the main drivers of contagion risk within the interbank funds market; and (iii) confirming that institution-centric (e.g. size) and network-related (e.g. betweenness, concentration of borrowing sources) characteristics may be salient features of super-spreaders. Therefore, we provide new elements for the implementation of monetary policy and for safeguarding financial stability.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages34
Volume2014-007
Publication statusPublished - 27 Aug 2014

Publication series

NameEBC Discussion Paper Series
Volume2014-007

Fingerprint

Central bank
Liquidity
Financial institutions
Monetary policy transmission
Betweenness
Banking risk
Network structure
Core-periphery
Borrowing
Financial stability
Financial contagion
Monetary policy
Financial networks
Interbank market

Keywords

  • interbank
  • liquidity
  • monetary policy
  • financial stability
  • networks
  • super-spreader
  • central bank

Cite this

Leon Rincon, C. E., Machado, C., & Sarmiento Paipilla, N. M. (2014). Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. (EBC Discussion Paper Series; Vol. 2014-007). Tilburg: EBC.
Leon Rincon, C.E. ; Machado, C. ; Sarmiento Paipilla, N.M. / Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. Tilburg : EBC, 2014. (EBC Discussion Paper Series).
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Leon Rincon, CE, Machado, C & Sarmiento Paipilla, NM 2014 'Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks' EBC Discussion Paper Series, vol. 2014-007, EBC, Tilburg.

Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. / Leon Rincon, C.E.; Machado, C.; Sarmiento Paipilla, N.M.

Tilburg : EBC, 2014. (EBC Discussion Paper Series; Vol. 2014-007).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks

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AU - Machado, C.

AU - Sarmiento Paipilla, N.M.

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N2 - 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 super-spreaders because of their simultaneous importance as global borrowers and lenders of central bank money. 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. Our research contributes by (i) examining and characterizing the actual connective structure of interbank funds networks; (ii) identifying those financial institutions that may be considered the most important conduits for monetary policy transmission, and the main drivers of contagion risk within the interbank funds market; and (iii) confirming that institution-centric (e.g. size) and network-related (e.g. betweenness, concentration of borrowing sources) characteristics may be salient features of super-spreaders. Therefore, we provide new elements for the implementation of monetary policy and for safeguarding financial stability.

AB - 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 super-spreaders because of their simultaneous importance as global borrowers and lenders of central bank money. 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. Our research contributes by (i) examining and characterizing the actual connective structure of interbank funds networks; (ii) identifying those financial institutions that may be considered the most important conduits for monetary policy transmission, and the main drivers of contagion risk within the interbank funds market; and (iii) confirming that institution-centric (e.g. size) and network-related (e.g. betweenness, concentration of borrowing sources) characteristics may be salient features of super-spreaders. Therefore, we provide new elements for the implementation of monetary policy and for safeguarding financial stability.

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KW - liquidity

KW - monetary policy

KW - financial stability

KW - networks

KW - super-spreader

KW - central bank

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ER -

Leon Rincon CE, Machado C, Sarmiento Paipilla NM. Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. Tilburg: EBC. 2014 Aug 27. (EBC Discussion Paper Series).