Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks

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.