Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks

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

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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 receiving (borrowing) and distributing (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. We provide additional elements for the implementation of monetary policy and for safeguarding financial stability.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages45
Volume2015-052
Publication statusPublished - 10 Nov 2015

Publication series

NameCentER Discussion Paper
Volume2015-052

Fingerprint

Central bank
Liquidity
Financial institutions
Interbank market
Centrality
Network structure
Authority
Core-periphery
Borrowing
Financial stability
Excel
Lending relationships
Lending
Financial contagion
Monetary policy
Hub
Network analysis
Financial networks

Keywords

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

Cite this

Leon Rincon, C. E., Machado, C., & Sarmiento Paipilla, N. M. (2015). Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. (CentER Discussion Paper; Vol. 2015-052). Tilburg: CentER, Center for Economic Research.
Leon Rincon, C.E. ; Machado, C. ; Sarmiento Paipilla, N.M. / Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. Tilburg : CentER, Center for Economic Research, 2015. (CentER Discussion Paper).
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Leon Rincon, CE, Machado, C & Sarmiento Paipilla, NM 2015 'Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks' CentER Discussion Paper, vol. 2015-052, CentER, Center for Economic Research, Tilburg.

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

Tilburg : CentER, Center for Economic Research, 2015. (CentER Discussion Paper; Vol. 2015-052).

Research output: Working paperDiscussion paperOther research output

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Leon Rincon CE, Machado C, Sarmiento Paipilla NM. Identifying Central Bank Liquidity Super-Spreaders in Interbank Funds Networks. Tilburg: CentER, Center for Economic Research. 2015 Nov 10. (CentER Discussion Paper).